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M.A.
(COMMUNICATION
ANDJOURNALISM)
SEMESTER - I (CBCS)
MEDIA ECONOMICS SUBJECT CODE :
© UNIVERSITY OF MUMBAI
Prof. Suhas Pednekar Vice Chancellor
University of Mumbai, Mumbai.
Prof. Ravindra D. Kulkarni Pro Vice -Chancellor University of Mumbai.
Prof. Prakash Mahanwar Director
IDOL, University of Mumbai.
Programe Co -ordinator : Mr. Anil R. Bankar
Associate Professor of History and
Head, Faculty of Humanities,
IDOL, University of Mumbai.
Course Co -ordinator : Mr. Sagar Karande
Assistant Professor, Communication and Journalism, IDOL
Course Writers : Dr. Yatindra Ingle
Assistant Professor,
Usha Pravin Gandhi College of Arts Science and Commerce.
: Gajendra Deoda
Assistant Professor,
Sathaye College.
: Priya Shukla
Assistant Professor,
Rizvi College of Arts, Science and Commerce.
munotes.in
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: Aditi Mone
Assistant Professor,
Sheth NKTT College of Commerce and JTT College of Arts,
Thane.
May 2022, Print I
ipin Enterprises
Published by
Director
Tantia Jogani Industrial Estate, Unit No. 2,
Institute of Distance and Open Learning, University of Mumbai,Vidyanagari, Mumbai - 400 098. Ground
Floor, Sitaram Mill Compound,
J.R. Boricha Marg, Mumbai - 400 011
DTP COMPOSEDAND PRINTED BY
Mumbai University Press,
Vidyanagari, Santacruz (E), Mumbai - 400098.
CONTENTS
Unit No. Title Page No
1. Media Economics 1 -13
2. What Is So Special About Economics of Media, Key Economic Characteristics of The Media 14 -17
3. Economies of Scale, of Scope and Changing Technology 18 -28 4. Convergence, What Are Multi -Media
Platforms, the Vertical Supply Chain 29 -44 5. Changing Market Structure and Boundaries, Digital
Convergence 45 -55 6. Technological Change and Innovation 56 -60 6A. Creative Destruction 61 -65 6B. Multi -
Platform 66 -68 7. Digitization and Media 69 -84 8. Economics of Networks 85 -98
9. Mass to Niche, User Empowerment, Segmentation And Branding, Audience Flow Management, Public
Service Content Provision 99 -112
10. The Economics of Print, Film Television and Radio 113 -123 11. Globalization of Content 124 -139 12.
Economics - Macroeconomics & Microeconomics 140 -151 13. The Indian Print Media Business Today 152 -
162 14. Indian Electronic Media Business 163 -172 15. In dian Film Business 173 -
*****
Syllabus
Media Economics (Core course) munotes.in
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M.A.( Communication and
Journalism) Semester – I
Course Name : Media
Economics (English Version) Course Code:
This course teaches how economic theories and concepts apply to all
aspects of media. The digital revolution, convergence, globalised
competition and international trade has reshaped communication and
media businesses and is, at the same time, presentin g challenges to policy
makers. This course equips the learner to understand how economic forces
affect the operation of media industry, explores innovation, digital multi -
platform developments, economics of networks, risk -spreading strategies,
copyright, corporate expansion, advertising whose resonance frequently
extends beyond individual sectors and across the industry as a whole.
By the end of the course the learner must be able to apply economic
theories and concepts to the mass media and mass communication in India
and the world :
Week
1 What is media economics
about, macroeconomics
and microeconomics, the
firm in economic theory,
competitive market
structures, market
structure and behavior Understanding Media
Economics, Gillian Doyle,
Sage, 2013
Media Economics: Theory and
Practice, edited by Alison
Alexander, James E. Owers, Rod
Carveth, C. Ann Hollifield,
Albert N. Greco, Lawrence
Erlbaum, 2004
Handbook of Media
Management and Economics,
edited by Alan B. Albarran,
Sylvia M. Chan Olmste d,
Michael O. Wirth, Lawrence
Erlbaum, 2006
The Indian Media Business,
Vanita Kohli Khandekar,
Response, 2010 Week
2 Ethics in India –
principles and practice
Week
3 Economies of scale, of
scope and changing
technology
Week
4 Convergence, what are
multi -media platforms,
the vertical supply chain
Week
5 Changing market
structures and
boundaries, digital
convergence.
Week
6 Technological change,
innovation, creative
destruction, multi -
platform
Week Media response to
digitization, managerial munotes.in
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7 theories, horizontal
expansion, vertical
expansion, transnational
growth
Week
8 Economics of networks,
broadcasting networks,
online content
distribution, social
networks and
microblogging
Week
9 Mass to niche, user
empowerment,
segmentation and
branding, audience flow
management, public
service content provision
Week
10 The economics of print,
film, television and radio
Week
11 Globalising of content,
advertising industry,
internet advertising,
advertising as barrier to
market entry
Week
12 Media economics and
public policy
Week
13 The Indian print and
digital media business
Week
14 The India electronic
media business
Week
15 The Indian film business
Total
Hours 4 hours per week = 60
hours
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The course will specifically cover the following areas. Introduction to
media economics theory and practice, economics and media regulation,
economics of international media, economics of the daily newspaper,
television, radio, internet, cable industry, films, advertising, online media
and public relations.
Class methodology:
This is a six credit course. It will involve teaching -learning for four hours
a week for a period of 15 weeks. Of the total 60 teaching -learning hours,
40 will comprise the central teaching component while 20 hours will
comprise the self -study component . The self -study component will consist
of academic tasks outside the classroom that will be assigned by the
teacher. The 40 hour teaching component will include two tests conducted
in the classroom. These tests may be written, oral, in the form of
presentations etc. Altogether these tests will be for 25 marks.
The self -study component of 20 hours will include writing of critical
essays, research projects, and production of media content. These will be
evaluated for 15 marks. The self -study component assigned in this manner
will be related to or an extension of but not in lieu of the prescribed
syllabus.
*****
1
MEDIA ECONOMICS
Unit Structure
1.1 Introduction
1.2 Historical Development of Media Economics
1.3 Development of Media Economics:
1.4 Media Economic Research Methodologies:
1.5 Nature of Research in Media Economics:
1.6 What Is Macroeconomics And Microeconomics?:
1.7 What Is Macroeconomics?:
1.8 Microeconomic Theories: The Industrial Organization (Io) Model
1.9 The Theory of The Firm:
1.10 Market Structures: What Are They And How Do They Work?:
1.11 Questions
References
1.1 INTRODUCTION
The application and study of economic ideas and concepts to the media
industries is known as media economics. Traditional media such as print,
broadcasting, music, and film, as well as emerging media forms such as munotes.in
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the Internet, are all covered under med ia economics. Media economics
research covers a wide range of themes, including policy and ownership
issues, market concentration, media firm practises and performance, and
media political economy. This unit examines the history of media
economics, sig nificant theories and paradigms in media economics
research, and media economics' contributions to the larger field of
communication science.
Media economics is a term used to describe the financial and business
transactions of organisations that produ ce and sell content to the various
media sectors. What is produced, the technology and structure of how it is
produced, and for whom it is produced are all topics in economics. The
study of the application of economic ideas, concepts, and theories to th e
macro and microeconomic elements of mass media enterprises is known
as media economics. Print, radio, television, the Internet, and social media
are all common media platforms.
According to the Ministry of Information and Broadcasting of India's 2014
records, there are 832 television channels (406 news & current affairs, 426
others), 245 FM (frequency modulation) radio stations, 179 community
radio stations, and 99,660 publica tions (news papers 13,761 and
periodicals 85,899) registered with the Registrar of Newspapers for India
(RNI)], following the Government of India's initiative to relax foreign
1
direct investment (FDI) pave the way for the Media economic aspects in Media Economics relation to
content, sources, media firm managing pattern, media products, influence of media regulations,
polices, changing consumer taste & technology, cross media ownership, media manpower hiring
pattern, and global, national, and local competition in media firms all have a lot of potential to
be studied.
Microeconomic components of the media market are studied in relation to
policies and regulations at the global, national, and local levels, where
microeconomics encompasses supply and demand, consumer requirements
and wants, market structure, and busines s conduct and behaviour.
1.2 HISTORICAL DEVELOPMENT OF MEDIA
ECONOMICS:
The study of economics paved the way for the establishment of the area of
media economics. With the study of mercantilism in western Europe in the
sixteenth century, the first lit erature on economic thinking began to
emerge. The amassing of precious metals such as gold and silver was
linked by mercantile with riches. If a country lacks mining, it can obtain
goods through trade and commerce. This resulted in political market
interference through tariffs and subsidies, elevating commercial interests
to national policy and connecting economic activity to political goals. The
French physiocrats, a group of eighteenth -century intellectuals who
opposed mercantilism in favour of agr iculture, were among the first to
advocate for a laissez -faire policy, or minimum government intervention
in the market. This organisation was one of the first to see the economy as
a continuous flow of inputs and outputs.
With a massive collection of works that produced a key work named The
Wealth of Nations, philosopher Adam Smith is recognised with providing
the first syntheses of economic philosophy. Land, labour, and capital, munotes.in
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according to Smith, are the three most si gnificant aspects of production
and key contributors to a country's wealth. Smith coined the term
"political economy" to describe the developing subject, which later
became the moniker for the study of economics. In addition to Smith, the
classical sch ool of political economy was founded by David Ricardo,
Thomas Malthus, and John Stuart Mill. These authors' research focused on
the interaction of economic factors, market operation, and production
costs.
New theories such as marginalist economics and Marxism would
subsequently challenge the classical school. While classical scholars
believed that price was primarily influenced by the cost of production,
marginalists felt that price was driven by demand. The marginalists
supplied the basic analytic tools of demand and supply, consumer utility,
and the use of mathematics as an analytical tool, all of which were
forerunners to the creation of microeconomics. Marginalists also claimed
that, in a free market economy, the factors of production (most no tably
2
Media Economics land, labour, and capital) were crucial to comprehending the economic system.
Labor was designated as the source of production by the Marxist school,
which was founded on Karl Marx's works. Marx was opposed to a market
system that permitted capitalists (factory and machinery owners) to exploit
workers and deny them a fair portion of the things created. Marx foresaw
capitalism's demise, thinking that the disenfranchised worker class would
eventually rebel, topple the capitalists, and seize the means of production.
By the turn of the century, universities had embraced the expandi ng field
and had eliminated the adjective "political" in favour of the single word
"economics," which was used to describe courses in both North America
and Europe. However, a more significant shift was taking place, as
economic study shifted from a cl assical to a neoclassical methodology.
Neo-classical economics was distinguished by its examination of market
behaviour and price determination using both analytical techniques and
mathematics (mainly calculus). Another significant addition of
neoclass ical economics was the refining of demand theory, as much of
classical economics tended to focus solely on production and supply
principles. Many of the principles developed during the neoclassical era
became the foundation for the study of microeconomi cs as a whole.
A number of significant contributors enriched the study of economics in
the second half of the twentieth century. During his time at the University
of Cambridge, Alfred Marshall became one of the most prolific economic
researchers, inspiring innumerable graduate students. Marshall is credited
for refining many parts of economic theory, as well as making significant
contributions to the study of industrial supply, consumer surplus, demand
elasticity, and resource allocation.
During this time, another important academic, Edward H. Chamberlin,
proposed a new type of market structure termed monopolistic competition.
Monopolistic competition is based on the concept of product
differentiation, which can be applied to a variety of industries where
numero us providers offer slightly different items. Joan Robinson munotes.in
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established the theory of imperfect competition, which looked at price
discrimination among monopolists as well as the labour market. She was
one of the few female scholars in the neoclassical e ra. During the neo
classical period, welfare economics, the study of how economics might be
used to support better social policies, blossomed.
With the introduction of macroeconomics, significant shifts in twentieth
century economic philosophy were furth er realised. The focus shifted to
aggregate economics, which includes all monetary and market ideas.
During the 1950s and 1960s, macroeconomics became a driving force
behind a number of fiscal policy decisions in both Western Europe and the
United Stat es. Alfred Marshall's student and eventual originator of
Keynesian economics, John Maynard Keynes, became the most well
known macroeconomics scholar.
3
The basis for using government spending and taxation to stabilise the Media Economics economy
would be provided by Keynes' ideas and research. When private spending was insufficient and
risked a recession, Keynes believed the government should boost spending and lower taxes;
conversely, when private spending was excessive and threatened inflation, the government
should reduce expenditure and raise taxes. The focus on the elements that influence total
spending that Keynes advocated for is now at the heart of modern macroeconomic analysis.
Irving Fisher (money, pricing, and statistical analysis), Knut Wicksell
(public choice), A. C. Pigou (welfare economics), and Milton Friedman
were among the other scientists who influenced macroeconomics as a field
of study (economic policy and consumption). Macroeconomics currently
covers a wide r ange of themes, including economic growth, employment,
aggregate output, consumption, inflation, and political economy, to name
a few. Other fields of study that occurred with this time period included
international economics, developing applied economi cs methodologies,
and the adoption of more sophisticated analytical and statistical tools
through econometrics, a sub -field of economics.
Theoretical economics and economic theory are always developing and
evolving. Growing inflation and productivity developments in the 1970s
pushed economics in new directions, including monetarist ideas, which re
emphasized money supply growth as a predic tor of inflation. The
hypothesis claims that the ability of the market to anticipate government
policy actions limits their efficacy.
The study of supply -side economics resurrected a concern voiced in the
classical school about economic growth as a nec essary condition for
societal improvement. Supply -side economics emphasises the importance
of providing incentives for consumers to save and invest in order for a
country's economy to grow, as well as the danger of cancelling out those
advantages throu gh high taxes.
1.3 DEVELOPMENT OF MEDIA ECONOMICS:
This overview of important historical trends in economic theory
exemplifies the field's rich diversity of studies and theories. Scholars
began to research many different marketplaces and businesses as the study
of economics became more polished, applyin g economic concepts and munotes.in
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principles to a variety of fields, including media. The development of
media economics would be aided by the growing interest in this field.
The development of mass media cleared the door for the study of media
economics, with s ome of the first studies appearing in the 1950s and
continuing into the twenty -first century. All of the ingredients needed to
study the economic process were present in the media industries.
Consumers and advertising formed the demand side of the marke t, while
content providers delivering information and entertainment represented
suppliers. Macroeconomic market conditions were influenced by
regulatory and policy bodies (e.g., the Federal Communications
4
Media Economics Commission [FCC], the Federal Trade Commission, and other entities), whereas
microeconomic market conditions were influenced by the relationships
between suppliers in various industries.
Many of the first media economics studies focused on microeconomic
issues, with newspapers, radio, and television as the key businesses
studied. The majority of this early research is descriptive in nature,
covering subjects such as ownership, advertising revenues, market
structure, and competition with other media.
Concentration of ownership was a hot problem early on in the field, and it
continues to be so today. The media's concentration has an impact on both
regulatory and social policy, and there is a substantial body of literature on
the subject covering all aspects of the media industries. Concentration is
synonymous with ownership, which is another topic of investigation in
media economics. Ownership studies can also be viewed through the lens
of media management, demonstrating the interconnectedness of media
management and media economics. Other research has looked at media
competition, consumer spending and the relative constancy principle,
barriers to entry for new businesses, advertising and ownership desire, and
consumer utility.
The Journal of Media Economics debuted in 1988, significantly
establishing the area of media economics. The Journal of Media
Economics has established itself as the leading publication for cutting edge
research in the subject. A number of books and edite d volumes have
contributed to the development of media economics, in addition to essays
in scientific publications.
1.4 MEDIA ECONOMIC RESEARCH
METHODOLOGIES
Trend studies, financial analysis, econometrics, and case studies are the
four techniques su ggested by the literature
Data from a time series is compared and contrasted in trend analyses.
Scholars often research concentration indices over time to determine the
impact of various legislative decisions or other acts on media ownership
when examining media concentration. T he network radio trend studies by
Dimmick and McDonald (2001), Greco's (1999) research of book
publishing and mergers, and Lewis' (1995) study of changes in newspaper
price and subscription fees were also reviewed. munotes.in
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Another useful instrument in media ec onomics is media financial analysis.
It employs a variety of data kinds and formats. The data from financial
statements is examined, as well as the usage of several sorts of financial
ratios. Economic research questions, hypotheses, and theory are valid ated
and developed using statistical and mathematical models in econometrics.
Media economists with backgrounds in communication or journalism are
unfamiliar with econometrics, which requires mathematical skills to create
5
econometric models used in general economic literature. Kennert and Uri Media Economics (2001)
and Miller (1997) are two examples of econometric analysis study.
Case studies are common in media economic research because they allow
a researcher to use a v ariety of data and approaches. In media economics
study, case studies are usually very specialised and focused analyses.
McDowell and Sutherland's (2000) analysis of branding, Nye's (2000)
evaluation of litigation in music publishing, and Gershon and Eg en's
(1999) case study of retransmission consent in the US cable television
market are some noteworthy case studies. Policy analysis and historical
research are two examples worth mentioning. The impact of governmental
regulatory policy on media market s and businesses is the subject of policy
studies. Historical research focuses on changes over time and can include
a variety of approaches such as trend analyses, policy analysis, and case
studies (Wolfe & Kapoor, 1996). Because the unit of analysis is frequently
the organisation or corporation, this technique is common in media
management research. The best type of data can be found in the
complexity of organisational phenomena. It's also beneficial for
performing exploratory research, such as when you want to learn more
about areas of organisational behaviour that aren't well documented or
understood yet and can only be uncovered through careful, multi -layered
investigation.
Microeconomic theories, macroeconomic theories, and political economy,
which can also be referred to as critical theory, are the three key areas of
theoretical research that account for much of the knowledge in the subject
of media economics. Because media economics research focuses on
individual industries and market si tuations, much of the historical
literature base deals with microeconomic trends and challenges.
Macroeconomic studies, by their very nature, include a considerably
broader range of themes, including labour and capital markets, GDP, and
policy and regulatory issues. In comparison to the literature based on
microeconomic theories, the literature bas ed on macroeconomic theories is
much smaller.
The political economy of the media is broad and varied, and it arose as a
reaction against positivist approaches to conventional economic theory.
Scholars from subjects such as political science, sociology, and
economics, as well as communications, flocked to the mass media as a
natural area of investigation for political economy research.
1.5 NATURE OF RESEARCH IN MEDIA ECONOMICS
Good research, regardless of discipline, is as much about the importance munotes.in
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of the issue posed as it is about finding an answer to it. Here are a few
questions that enumerate media economic issues:
Do media companies create the goods and services that peop le desire and
need? Are they delivered in sufficient numbers and under optimal
conditions? What relationship exists between the markets in which media
6
Media Economics companies operate and their performance? How can media executives ensure that
the resources available to provide media goods are utilised as efficiently as
possible?
What unique obstacles does the management of creative processes
present? Which tactics will ensure that new media technologies are
utilised to their full potential in order to gain a competitive advantage?
What role should the government play in ensurin g that media output is
organised and supplied in a way that meets social needs? The next
research question is for whom the research is being conducted; it is
apparent that it is being conducted on behalf of a customer (a media
organisation).
Interviews and questionnaires are the two most frequent research
approaches for gathering information from media managers or other
industry practitioners. Observation and focus groups are two other ways
that could be effective.
1) Texts and documents:
For researchers in our profession, official data in the public domain is an
immensely significant resource. Industry regulators such as the Telecom
Regulation Authority of India, the Ministry of Information Broadcasting
media wings, the Federation of I ndian Chambers of Commerce (FICCI),
or the Copyright Tribunal are typically able to provide essential economic
media data.
Monthly performance evaluations, dissections of running costs, and the
kind of management data that would allow a media company's operations
to be evaluated in great detail are typically not available to the public (nor,
understandably, to rivals). Only by negotiating with or talking to the
gatekeepers can a motivated researcher gain access to this type of data.
Much of this official data is already available on the websites of numerous
bodies. For media management researchers, the Internet has become a
very valuable research tool. Indeed, most of the sources of official media
industry statistics, whether public or private, national or worldwide, have
websites where you may find information on reports and publications
(and, in many cases, full pape rs in downloadable form). Sales and
audience figures published by corporations like Nielsen or BARB are
routinely released into the public domain, and additional data may be
available on websites or in industry magazines.
2) People:
People are, of course, one of the most essential sources of knowledge on
management techniques in the media industry. Interviews and munotes.in
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questionnaires are the two most frequent research approaches for
gathering information from media managers or other indu stry
practitioners. Observation and focus groups are two other ways that could
be effective.
7
3) Analyses (quantitative and qualitative): Media Economics
Existing research studies in media management and economics
demonstrate a variety of quantitative and qualitative investigation
methodologies (sometimes both). Measurement is at the heart of
quantitative research. Quantitative analysis can be applied to the results of
questionnaire surveys, highly organised interviews, or numerical and
statistical data acquired from primary and secondary sources.
Individuals' interpretations of their environment or events occurring within
it, as well as their own or others' conduct, take centre stage in qualitative
research. Qualitative research is ideal for examining work practises and
management styles, as well as doing organisational research. The
examination and presentation of qualitative findings allows for t he
consideration of nuances and settings.
1.6 WHAT IS MACROECONOMICS AND
MICROECONOMICS?
Microeconomics and macroeconomics are the two basic divisions in
which economics is split. Microeconomics is the study of specific
economic divisions and markets. It examines topics such as consumer
behaviour, individual labour markets, and firm theory. Macroeconomics,
on the other hand, is the study of the entire economy. Aggregate factors
such as aggregate demand, national output, and inflation are examined.
1.7 WHAT IS MACROECONOMICS?
Macroeconomics is the study of a country's economic progress an d
actions. It also covers the examination of policies and other influencing
factors that have a broad impact on the economy. Macroeconomics is
based on a top -down strategy, using tactics such as –
∙ A country's overall economic growth.
∙ Unemployment and inflation are likely to be influenced by the following
factors.
∙ Interest rates are likely to be influenced by fiscal policy.
∙ Globalization and international trade have an impact.
∙ Reasons for differences in economic growth between countries.
Another characteristic of macroeconomics is that it is concerned with
aggregated growth and its economic correlation.
What is Microeconomics?:
Microeconomics is concerned with the decisions made by individuals and munotes.in
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businesses in response to the shifting cost of products and services in an
economy. Microeconomics encompasses a wide range of topics, including:
8
Media Economics Varied marketplaces have different supply and demand for items. Consumer
behaviour, either individually or collectively. Individual labour markets,
demand, and determinants such as an employee's compensation are all
factors that influence service and la bour demand. One of the most
distinguishing characteristics of microeconomics is that it focuses on ad
hoc scenarios in which a marketplace's present conditions alter. To analyse
the economy, it demands a bottom -up strategy.
What is the relationship be tween microeconomics and
macroeconomics?:
Microeconomics and macroeconomics are not interrelated but mutually
separate areas of economics. The two terms have a strong relationship. All
microeconomic studies can be used to analyse micro and macroeconomi c
variables for a better understanding. A study like this will aid in the
development of economic policies and programmes. Changes and
processes in the economy, as we all know, are the result of both small and
large -scale elements that have the ability to affect or are directly affected
by one another. For instance, while the tax hike is a macroeconomic
decision, the impact on enterprises' savings is a microeconomic
consideration.
Let us consider another example: if we understand how the price of any
commodity is set and what role buyers and sellers play in the process, we
will be better able to analyse changes in the overall price level of all
commodities in the economy.
Microe conomics is the study of determining the price of a commodity and
the role of buyers and sellers in this process, whereas macroeconomics is
the study of the overall price level in economics. Similarly, to identify an
economy's performance, we must first determine the performance of each
sector of the economy, and to determine the performance of each sector of
the economy, we must determine the performance of each sector
individually or in groups.
A microeconomics study examines each sector of a produ ction unit or
group, whereas a macroeconomics study examines all production units in
all sectors. As a result, microeconomics and macroeconomics are two
aspects of economics that are intertwined. As a result, economics requires
a thorough understanding of both words.
1.8 MICROECONOMIC THEORIES: THE INDUSTRIAL
ORGANIZATION (IO) MODEL
The industrial organisation model, devised by a group of neo -classical
economists, is the most extensively used framework for studying media
economics. The model provides a method for systematically assessing
many of the abstract notions encountered in market research. The
industrial organisation (IO) concept is based on three primary factors:
market structure, market behaviour, and market performance. As a result, munotes.in
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9
Media Economics the model is also known as the SCP model, and it is used to analyse media
marketplaces and businesses.
In its most basic version, the IO or SCP model asserts that knowing the
market structure provides for explanation of anticipated company
behaviour an d performance. The exact variables linked with each aspect of
the model can be used to further define and analyse each of the three
domains (structure, conduct, and performance). In the case of market
structure, characteristics such as the number of sel lers and buyers in the
market, the degree of product diversification, the barriers to entry for new
rivals, cost and price structures, and the degree of vertical and horizontal
integration are frequently utilised for analysis.
For media economics research, the market is quite useful. Some
researchers have concentrated on a single aspect of the model, such as
market structure, while others have taken a more comprehensive approach
and examined all aspects of the model. The mode l highlights the
interdependencies between how a market is constituted and the behaviour
and performance expectations that result. Scholars of media economics
have been criticised for relying too heavily on the IO model, which they
claim does not captu re all of the complexities involved with new
technologies and market convergence. The model, however, continues to
be of tremendous use to academics and remains one of the most important
theoretical foundations in microeconomics study.
1.9 THE THEORY O F THE FIRM
The theory of the firm was developed as a result of efforts to improve
knowledge of market structure. The theory of the firm is an extension of
the industrial organisation model that aims to provide a more detailed
explanation of the most pr evalent market structures: monopoly, oligopoly,
monopolistic competition, and perfect competition. Oligopolistic and
monopolistic competitive frameworks dominate most media marketplaces.
In the media industry (with the exception of websites), perfect co mpetition
is unusual, and monopoly is usually limited to areas like newspapers and
cable television.
The simplicity and economy of this method make it appealing. However,
due to significant concentration in the media sectors and technological
convergence, defining a market structure has grown more difficult. For
example, the radio market can be defined as just broadcast radio, but it can
also include high definition (HD) and satellite radio, Internet radio, and
even podcasting. Many academics believe that these broad and basic
names do not adequately describe market structure.
Competitive Market Str uctures:
What is Market Structure?:
In economics, market structure refers to how different industries are
classed and distinguished based on the degree and form of products and
10
Media Economics service competition. It's based on the features that influence the behaviour and munotes.in
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outcomes of businesses in a certain market.
The number of customers and sellers, ability to negotiate, degree of
concentration, degree of product differentiation, and ease or difficulty of
entering and departing the market are all elements that influence market
structure.
Market Structures: An O verview:
Market structures can be well understood in economics by evaluating a
variety of aspects or characteristics displayed by different players. The
following seven key characteristics are commonly used to distinguish
these marketplaces.
∙ The buyer structure in the industry
∙ The number of clients who return
∙ The degree to which products differ
∙ The nature of input costs
∙ The number of market participants
∙ In the same industry, the degree of vertical integration
∙ The market share of the biggest player
Similar attributes can be discovered by comparing the aforementioned
characteristics to one another. As a result, categorising and distinguishing
organisations across connected industries becomes easier. Economists
have identified four unique types of m arket structures based on the
characteristics listed above. Perfect competition, oligopoly markets,
monopoly markets, and monopolistic competition are some of them.
1.10 MARKET STRUCTURES: WHAT ARE THEY AND
HOW DO THEY WORK?
1. Perfect Competition:
When a large number of small businesses compete against each other,
perfect competition occurs. They sell identical products (homogeneous),
have no price effect over commodities, and can enter and depart the
market at any time.
The things being sold ar e fully understood by the consumers in this form
of market. They are aware of the charges made against them as well as the
product branding. The pure form of this type of market structure rarely
exists in the actual world. It is, nonetheless, useful whe n comparing
organisations with similar characteristics. This market is unrealistic due to
the following key issues.
11
When there is little competition and a firm has a dominant market share, Media Economics there is a
natural urge to accelerate innovation in order to keep up with the competition and maintain the munotes.in
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status quo. In a totally competitive market, however, the profit margin is set, and sellers are
unable to raise prices without losing clients.
There are few impediments to entry: Any business can enter the market
and sell its product. In order to sustain market share, incumbents must
remain proactive.
2. Monopolistic Competition:
Monopolistic competition is a type of imperfectly competitive market that
has both monopolistic and competitive characteristics. Sellers compete
with one another and can differentiate their products in terms of quality
and branding to appear unique. In this sort of competition, sellers examine
their competitors' pricing while ignoring the effect of their own prices on
their competitors.
There are two main elements of monopolistic competition that can be
detected when comparing short -term and long -term monopolistic
competition. In the near run, the monopolistic firm optimises revenues and
reaps all of the benefits that come with being a monopoly.
Because of the great demand, the company creates a large number of
products at first. As a result, its Marginal Revenue (MR) equals its
Marginal Cost (MC) (MC). MR, on the other hand, decreases with time
when new competitors enter the market with distinct products, influencing
demand and resulting in lower profit.
3. Oligopoly:
A small number of large enterprises sell differentiated or identical items in
an oligopoly market. Because there are just a few companies in the
market, their competing strategies are intertwined.
If one of the actors, for example, decides to drop the p rice of its items, this
will cause other actors to follow suit. A price increase, on the other hand,
may persuade others to take no action in the hopes that consumers will
choose their items. As a result, strategic planning by these players is
essentia l.
In a case when enterprises are competing against each other, they may
reach an agreement to share the market by limiting production, resulting in
above -average earnings. This is true if both parties respect the Nash
equilibrium state and are not enticed to play the prisoner's dilemma. They
operate as monopolies under such an agreement. Cartels are the term for
collusion.
4. Monopoly:
A single business represents the whole industry in a monopoly market. It
is the only seller of products in the entire market and has no competitors.
12
Media Economics This market is defined by factors such as sole claim to resource ownership, patent
and copyright protection, government -issued licences, and significant
initial start -up costs.
All of the following features of monopoly make it difficult for other munotes.in
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businesses to enter the market. Because it has the authority to dominate
the market and set prices for its goods, the firm remains a sole vendor.
1.11 QUESTIONS
1. Discuss the historical developments of Media Economics.
2. Explain nature of research in Media Economics.
3. What Is Micro and Macroeconomics? State the relation between them.
4. Discuss in detail ‗Microeconomic Theories: The Industrial Organization
(IO) Model‘.
5. Discuss at length ‗Competitive Market Structures‘.
1.12 REFERENCES
∙ Albarran, A. B. (2002). Media economics: Understanding markets,
industries and concepts, 2nd edn. Ames, IA: Blackwell.
∙ Albarran, A. B., Chan -Olmsted, S. M., & Wirth, M. O. (2006).
Handbook of media management and economics. Mahwah, NJ:
Lawrence Erlbaum.
∙ Alexander, A., Owers, J., Carveth, R., Hollifield, A., & Greco, A. (eds.)
(2004). Media economics: Theory and practice, 3rd edn.
Mahwah, NJ: Lawrence Erlbaum, pp. 207 –220.
∙ Croteau, D., & Hoynes, W. (2006). The business of media: Corporate
media and the public interest. Thousand Oaks, CA: Pine Forge.
∙ Dimmick, J. W. (2003). Media competition and coexistence: The theory
of the niche. Mahwah, NJ: Lawrence Erlbaum.
∙ Napoli, P. M. (2003) . Audience economics. New York: Columbia
University Press.
∙ Picard, R. G. (2002). The economics and financing of media firms. New
York: Fordham University Press.
∙ Picard, R. G. (ed.) (2002). Media firms. Mahwah, NJ: Lawrence Erlbaum
*****
13
2
WHAT IS SO SPECIAL ABOUT
ECONOMICS OF MEDIA, KEY munotes.in
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ECONOMIC CHARACTERISTICS OF THE
MEDIA
Unit Structure
2.1 What Is So Special About The Economics Of The Media?
2.2 Key Economic Characteristics Of The Media:
2.3 Questions
2.4 References
2.1 WHAT IS SO SPECIAL ABOUT THE ECONOMICS
OF THE MEDIA?
The application of economic theory and views in the context of media
provides a range of obstacles because media and other 'cultural' output
have unique traits not shared by other products and services. The output of
the media appears to defy the very p remise on which economic principles
are based — scarcity. It does not matter how many times a film, a song, or
a news report is seen or listened to.
The goal of economics is to enhance 'efficiency' in resource
allocation. The concept of economic efficie ncy is intrinsically linked
to goals.
Media organisations, on the other hand, have a wide range of goals. Many
media companies adhere to the traditional idea of the firm and, like any
other commercial entity, are primarily focused on making profits and
satisfying shareholders. However, a significant number appear to be
motivated by other factors. Quality of production and other 'public service'
type objectives are an aim in itself for people who work in the public
sector. Some broadcasting companies straddle the market and the non
market sectors, appearing to meet one set of goals for industry regulators
and another set of goals for shareholders. Because the objectives are
vague, any all -encompassing model based on standard economic theory is
difficult to apply.
The majority of resource allocation choices in free market economies are
made through the price system. However, the relationship between pricing
and resource allocation in the media is atypical, particularly in
broadcasting, where many of the services consumers receive still do not
need a direct payment from the viewer (despite the expansion of
subscription -based channels). The traditional method of registering
customer preferences with suppliers fails when pricing is not used as a
direct link betwe en consumers and manufacturers.
14
Media Economics In terms of economics, production processes are said to be inefficient if they could
create more of at least one commodity without generating less of another
by simply reallocating resources. However, when it comes to the creation
of media content, this strategy tends to fall short. For example, a television
firm may be able to redistribute its resources to produce more hours of
programming or reach larger audiences for the same cost as previously.
Could this, however, be considered a more effective use of resources if it munotes.in
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narrows the diversity of media output?
These concerns concerning production efficiency and allocation fall under
the umbrella of welfare economics, a branch of economic theory. This
area encompasses much of the work done in the United Kingdom on
broadcasting economics and related public poli cy challenges, most notably
by Alan Peacock and, more recently, by Gavyn Davies and others. The
premise that a 'welfare function' (i.e. a functional relation reflecting the
maximum welfare that can be created by different resource decisions) can
be spe cified for society as a whole is implicit in this method. Media
economics can play a role in demonstrating how to minimise the welfare
loss associated with any policy choices around media provision within
such a conceptual framework.
2.2 KEY ECONOMIC C HARACTERISTICS OF THE
MEDIA
Consider the qualities of the media as a whole that distinguish it from
other areas of economic activity to gain a sense of what makes media
economics unique. One such trait is that media companies frequently sell
their pro ducts in two independent and distinct markets at the same time.
Media industries are unique in that they typically operate in what Picard
(1989: 17 –19) refers to as a "dual product" market.
Content (television shows, newspaper copy, magazine articles, etc.) and
viewers are the two commodities that media companies produce. One type
of output that media companies can sell is the entertainment or news
material that listeners, viewers, or read ers 'consume.' Insofar as access to
audiences can be packaged, priced, and sold to marketers, the audiences
drawn by this content are a second valuable product.
Many media firms value audiences because they generate advertising
revenue, which is a majo r source of revenue for commercial television and
radio stations, as well as newspapers and many magazines, as discussed in
later chapters. Even non -profit media is concerned about their audiences.
For example, public service broadcasters must pay close attention to their
ratings and the demographic profile of their audience because the level of
audience utility or satisfaction they can demonstrate is usually central to
discussions about what level of funding, public or private, is made
available to them.
Blumler and Nossiter (1991) and Collins et al. (1988: 7 –10), for example,
have noticed that the other sort of media output – content – has a variety
of unique and distinctive characteristics. Media content is commonly
15
referred to as a 'cultural' good. Feature films,
television broadcasts, books, and music are not
just commercial products; they can also be valued
for their contributions to our cultural environment.
Many cultural commodities have the feature that
the information or messages they send, rather than
the material vehicle of that information,
determines their worth for buyers (the radio spectrum, CD, etc.).
Of course, messages and meanings are intangible.
As a result, media content is not 'consumable' in
the strictest sense (Albarran, 1996: 28).
Determining what defines a unit of media material
can be tricky at times. This could refer to a story,
an article, a television show, a complete
newspaper, or a radio station, for example. munotes.in
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Meanings, which are not material objects in and of
themselves, a re the core feature that audiences
appreciate in one way or another. Media content
does not become used up or destroyed in the act of
consuming because its worth is often based on
immaterial characteristics. It doesn't matter if one
person sees a televi sion broadcast; it doesn't mean
that someone other won't be able to watch it.
The same content can be provided to additional
consumers over and over again because it is not
consumed as it is eaten.
As a result, television and radio broadcasts
demonstra te one of the main characteristics of a
'public good.' Other cultural products, such as
works of art, are likewise public goods because
one person's consumption does not decrease their
supply to others. Private goods (such as a loaf of
bread, jar of ho ney, or pint of Guinness) will be
consumed as they are consumed, whereas public
goods (such as a loaf of bread, jar of honey, or pint
of Guinness) will be consumed as they are
consumed. One loaf of bread is consumed as soon
as one person consumes it. It is no longer
accessible to others. Only one loaf of bread can be
sold at a time. When an idea or a narrative is sold,
however, the seller retains ownership of it and can sell it again and again.
Consumption of private goods depletes precious
resources , necessitating rationing (usually by the
market and by prices). However, this logic does
not apply to public goods. Although the initial cost
of establishing a public product may be
substantial, the marginal cost of supplying an
additional unit of it is almost nothing.
At least for terrestrial broadcasters, the marginal
cost of delivering a television or radio show to an
additional viewer or listener within one's
broadcasting reach is often zero. Similarly,
offering an online magazine to one more I nternet
user has a tiny marginal cost.
The common usage of a Research and
Development (R& D) analogy to highlight the very
high initial production costs and low replication
costs that are characteristic of broadcasting and
other media is noted by Hoskins et al. (1997: 31 –
2). In general, once the first copy of a media
product has been genera ted (during the costly
R&D phase), reproducing and supplying more
clients costs little or nothing.
What is So Special About Economics of Media, Key Economic
Characteristics of The Media
munotes.in
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16
Media Economics As the audience f or any particular media product grows, increasing marginal returns
will be enjoyed.
When audiences decline, however, media companies have few options for munotes.in
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cost-cutting. In most other industries, producers can adjust part of their
expenses in proportion to how much of their product is sold (and they can
reduce raw material purchases if d emand slows).
However, regardless of how many viewers tune in or do not tune in, the
cost of putting together and delivering a certain programme service is
constant for broadcasters. Similarly, when circulation falls short of
expectations, newspaper an d other print media proprietors have few
options for saving money (despite the fact that, unlike broadcasting,
marginal print and delivery expenses exist).
2.3 QUESTIONS
1. Explain in detail – What is so special about Economics in Media.
2. State the key economics characteristics of Media
2.4 REFERENCES
∙ Albarran, A. B. (2002). Media economics: Understanding markets,
industries and concepts, 2nd edn. Ames, IA: Blackwell.
∙ Albarran, A. B., Chan -Olmsted, S. M., & Wirth, M. O. (2006).
Handbook of media management and economics. Mahwah, NJ:
Lawrence Erlbaum.
∙ Alexander, A., Owers, J., Carveth, R., Hollifield, A., & Greco, A. (eds.)
(2004). Media economics: Theory and practice, 3rd edn.
Mahwah, NJ: Lawrence Erlbaum, pp. 207 –220.
∙ Croteau, D., & Hoynes, W. (2006). The business of media: Corporate
media and the public interest. Thousand Oaks, CA: Pine Forge.
∙ Dimmick, J. W. (2003). Media competition and coexistence: The theory
of the niche. Mahwah, NJ: Lawrence Erlbaum.
∙ Napoli, P. M. (2003). Audience economics. New York: Columbia
University Press.
∙ Picard, R. G. (2002). The economics and financing of media firms. New
York: Fordham University Press.
∙ Picard, R. G. (ed.) (2002). Media firms. Mahwah, NJ: Lawrence
Erlbaum.
*****
17
3
ECONOMIES OF SCALE, OF SCOPE AND munotes.in
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CHANGING TECHNOLOGY
Unit Structure
3.1 Introduction
3.2 Economy of Scale
3.3 External Scale Economies
3.4 External Scale and Location Economies
3.5 Is It True That Bigger Is Better?
3.6 Economies of Scope
3.7 Co -Products
3.8 Inputs That Are Shared:
3.9 Different Approaches to Scope Economies:
3.10 Questions
3.11 References
3.1 INTRODUCTION
Economies of scope and scale are two notions that explain why larger
organisations' costs are frequently lower. The average total cost of
production of a variety of items is the topic of scope economies.
Economies of scale, on the other hand, are concer ned with the cost
advantage that results from a higher level of production for a single good.
Because costs are dispersed among a number of items, a company that
benefits from economies of scope has lower average costs. It is far easier
for a restauran t chain to introduce new meals than it is to open a new
restaurant chain with the same new cuisine. Multiple meals can be
promoted at once, and the new items can be cooked and served with the
same equipment and personnel. When production and consumption are
complementary, economies of scope function best.
A corporation that benefits from economies of scale, on the other hand,
has a lower average cost because costs fall as the volume produced rises.
For instance, a corporation may be able to produce 100 million computer
chips for a lower cost per unit tha n 1 million chips. For each chip, the
corporation must spend a specific amount on research and development
(R&D), as well as money to build up each manufacturing. Once that's
done, it'll be easier to make more chips with less money. When fixed costs
are substantial, economies of scale operate best.
18
Media Economics 3.2 ECONOMY OF SCALE
The division of labour and specialisation, according to economist Adam
Smith, are the two most important ways to increase the return on
investment. Employees would be able to focus on a specific task using
these two strategies, as well as improve the ab ilities required to execute
their tasks over time. The activities could then be completed more munotes.in
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effectively and quickly. As a result, time and money might be saved while
production levels increased thanks to increased efficiency.
There are diseconomies of scale, just as there are economies of scale. This
occurs when output is insufficient in comparison to inputs. This indicates
that inefficiencies exist inside the company or industry, resulting in
growing average costs.
3.3 EXTERNAL SCALE ECONOMIES:
Internal and external economies of scale were defined by economist
Alfred Marshall. Internal economies of scale are realised when a
corporation cuts expenses while increasing production. Within an industry,
external economies of scale exist outside of a firm.
External economies of scale may emerge when an industry's scope of
operations expands as a result of outside developments. For example, the
development of a better transportation network may result in a reduction
in costs for a company and its e ntire industry. All enterprises in the
industry profit when external economies of scale exist.
Economies of Scale Inputs:
There are a variety of inputs that can result in the production of a good or
service within every organisation, in addition to specialisation and labour
division.
Reduced Input Prices:
When a company buys inputs or inventory in large quantities, such a s the
potatoes used to produce french fries at a fast -food chain like McDonald's
Corp., it might benefit from volume discounts.
Inputs That Are Expensive:
Some inputs, such as R& D, advertising, management experience, and
skilled labour, are too expensive. However, higher efficiency with such
inputs may be possible, leading to a reduction in the average cost of
production and sales. Economies of scale can be gained if a corporat ion
can spread the cost of such inputs over a larger number of production
units.
If the fast -food business decides to invest more money on technology in
order to improve efficiency by lowering the average cost of hamburger
19
assembly, it will have to raise the number of
hamburgers it makes each year to offset the
additional technology costs.
Inputs that are unique:
As a company's scale of production grows, it can
employ more specialised workers and machinery,
resulting in increased efficiency. This is because workers would be more qualified for a certain job
and wouldn't have to waste time learning to do
something that isn't in their area of expertise.
For example, instead of creating hamburgers or
accepting a customer's order, someone might
specialise in solely preparing french fries. A
dedicated french fry maker, for example, might
have a longer life because it isn't utilised munotes.in
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excessively or poorly.
Techniques and Inputs from the Organization:
With a higher scale of production, a corporation
can better organise its resources, such as
establishing a clear chain of command, while also
enhancing production and distribution procedures.
Employees behi nd the counter in a fast -food chain,
for example, may be divided into two groups:
those who take in -house orders and those who
serve drive -thru customers.
Inputs to Learning:
The learning processes associated to production,
selling, and distribution can result in better
efficiency over time, similar to improved
organisation and technique —practice makes
perfect.
3.4 EXTERNAL SCALE AND
LOCATION ECONOMIES:
As a result of the company's geographic location,
external economies of scale can be generated from
the above -mentioned inputs. As a result, all fast -food franchises in a given city's same area might
benefit from cheaper transportation costs and a
quali fied workforce.
Furthermore, supplementary sectors such as
specialised fast -food potato or cattle breeding
farms may emerge. External economies of scale
can also be realised if the sector shares technology
or management knowledge to reduce the costs of
expensive inputs. The spillover effect might result
in the establishment of industry norms.
Scale Diseconomies:
Diseconomies, as previously stated, can occur.
Inefficient managerial or labour policies, over -
hiring, or failing transportation networks could all
be contributing factors (external diseconomies of
scale).
Additionally, if a company's scope expands, it may
be required to distribute its goods and services in
increasingly separated places. As a result, average
costs may rise, resulting in scale inefficiencies.
(See "How
Economies of Scale, of Scope And Changing Technology
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20
Media Economics Do Economies of Scope and Economies of Scale Differ?" for more information.) munotes.in
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Some efficiencies and inefficiencies are more location -specific, whilst
others are not. If a corporation has multiple plants across the country,
costly inputs like advertising can benefit all of them. However, efficiency
and inefficiencies can also be c aused by a specific place, such as a
favourable or unfavourable farming environment.
3.5 IS IT TRUE THAT BIGGER IS BETTER?:
There is a global discussion concerning the effects of larger businesses
seeking economies of scale, as well as international trade and economic
globalisation.
As organisations become larger, the balance of power between demand
and supply may shift, le aving the company out of touch with its customers'
requirements. Furthermore, there is rising concern that as major
corporations merge, competition would completely vanish. As a result,
monopolies may arise that are solely concerned with earning a profi t
rather than being customer -centric.
Final Thoughts:
The fact that the sources differ is crucial to understanding economies of
scale and diseconomies of scale. A corporation must consider the whole
impact of its decisions on efficiency rather than focusing on a single
source.
While increasing a company's scale of operations may result in lower
average input costs (volume discounts), it may also result in scale
diseconomies. For example, if not enough transport trucks are invested in,
a company's enlarged distribution network may be inefficient.
Companies must balance the effects of many sources of economies of
scale and diseconomies of scale when making a strategic decision to
expand, so that the average cost of all decisions taken is lower, resulting in
higher efficiency all around. (See "Som e of the Variables Involved in
Economies of Scale" for more information.)
As a result, economies of scale are a common aspect of the media sector.
They will be addressed and discussed several times throughout this book,
so it is important to understand what they signify. In any industry where
marginal costs are lower than average costs, economies of scale are said to
exist. Economies of scale exist when the cost of producing an additional
unit of a good decreases as the scale of output increases.
Many industries benefit from economies of scale, particularly those in
manufacturing (for example, automobiles), where greater production runs
and automated assembly line procedures result in reduced average
production costs. There could be a number of ca uses for the existence of
economies of scale.
21
It's sometimes because larger companies can get
better (bulk) discounts on essential inputs than
smaller companies. Scale economies are frequently
associated with the advantages of specialisation
and division of labour that are attainable inside large c orporations.
Because of the public -good features of the media's
product, economies of scale occur. Marginal costs
(MC) are the costs of providing a product or munotes.in
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service to an additional customer for a media
company.
The overall costs of supplying the pro duct or
service are divided by the audience — the total
number of people who watch, read, listen to, or
otherwise consume it. Marginal costs are often low,
and in some cases negligible, in most media
sectors. Average costs are almost always lower
than marginal costs. If a result, as more viewers
tune in or more readers buy a copy of the
magazine, the company's average expenses of
supplying that product will decrease. Economies
of scale and better profits will be realised if
average production costs d ecrease as the scale of
consumption of the firm's products increases.
According to the notion of an economy of scope,
the average total cost of a company's production
drops as the range of commodities produced
increases. When a corporation produces a
complementary variety of products while focusing
on its core capabilities, it benefits from scope
economies. At first look, the concept of economy
of scope is readily misconstrued, especially
because it appears to contradict the concepts of
specialisatio n and scale economies. Imagine that it
is cheaper for two goods to share the same
resource inputs (if possible) than for each of them
to have separate inputs. This is a simple approach to think about economy of scope.
Rail transit is a simple approach to demonstrate
scope economies. Rather than having two trains,
one for passengers and the other for freight, a
single train can transport both passengers and
freight for less money. Joint production in this
situation lo wers total input costs. In economic
terms, this suggests that after product
diversification, the net marginal advantage of one
input factor increases.
Company ABC, for example, is the industry's
largest desktop computer manufacturer. Company
ABC wishes to expand its product line, so it
renovates its manufacturing facility to produce a
wide range of electronic products, such as laptops,
tablets, and phones. The average total cost of
production falls as the expense of operating the
manufacturing buildi ng is divided over multiple
goods. Producing each electrical gadget in a
separate building would be more expensive than
having a single production facility to produce
several products.
Mergers and acquisitions (M&A), newly
discovered uses of resource b y products, and when
two producers agree to share the same factors of
production are all examples of economies of scope
in the real world.
Economies of Scale, of Scope And Changing Technology
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22
Media Economics 3.6 ECONOMIES OF SCOPE munotes.in
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According to the economy of scope hypothesis, the average total cost of a
company's production lowers as the range of commodities produced
increases. When a corporation produces a complementary variety of
products while focusing on its core capabilities , it benefits from scope
economies.
At first look, the concept of economy of scope is readily misconstrued,
especially because it appears to contradict the concepts of specialisation
and scale economies. Imagine that it is cheaper for two goods to share the
same resource inputs (if possib le) than for each of them to have separate
inputs. This is a simple approach to think about economy of scope.
Rail transit is a simple approach to demonstrate scope economies. Rather
than having two trains, one for passengers and the other for freight, a
single train can transport both passengers and freight for less money. Joint
production in this situation lowers total input costs. In economic terms,
this suggests that after product diversification, the net marginal advantage
of one input factor in creases.
Company ABC, for example, is the industry's largest desktop computer
manufacturer. Company ABC wishes to expand its product line, so it
renovates its manufacturing facility to produce a wide range of electronic
products, such as laptops, table ts, and phones. The average total cost of
production falls as the expense of operating the manufacturing building is
divided over multiple goods. Producing each electrical gadget in a
separate building would be more expensive than having a single
produ ction facility to produce several products.
Mergers and acquisitions (M&A), newly discovered uses of resource by
products, and when two producers agree to share the same factors of
production are all examples of economies of scope in the real world.
As more of a firm's output is consumed, economies of scope are also about
earning savings and achieving efficiencies. Savings are made in this
situation, however, by varying the character or scope of the firm's output.
Media companies are known for thei r economies of scope, which are
accomplished through multiproduct production, and this is due to the
public -good aspect of media output.
Economies of scope are those available to businesses "big enough to
participate efficiently in multi -product produc tion and accompanying
wide -scale distribution, advertising, and purchasing" (Lipsey and Chrystal,
1995: 880). They occur when there are shared overheads or other
efficiency benefits that make it more cost effective to produce and sell two
or more relat ed items together rather than individually. If specialist inputs
obtained for one product can be re -used in another, cost savings may be
realised.
Because the nature of media output allows a product intended for one
market to be reformatted and marketed through another, economies of
23
scope are widespread in the media. An interview
with a politician, for example, that is tap ed for
transmission in a documentary may be edited for
use in other news programmes, whether on television or radio: the same television content can
be repackaged into many products. And the
reformatting of a product aimed at one audience
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results in scope economies.
Diversification is an economically advantageous
approach if economies of scope exist because "the
overall cost of the diversified firm is low when
compared to a set of single -product firm s providing
the same output" (Moschandreas, 1994: 155).
Diversification strategies are becoming more
common among media companies, owing to the
broad availability of economies of scale.
The creation of one good reduces the cost of
producing another related good, which is referred
to as an economy of scope. Economies of scope
arise when a company can produce a greater
variety of goods or services at a lower cost than if
it produced less variety or each good separately.
Due to the creation of complementary goods and
services, a company's, organization's, or
economy's long -run average and marginal cost
drops.
Economies of scope are defined by efficiencies
created by variety, whereas ec onomies of scale are
defined by volume. The latter relates to lowering
the marginal cost of production by generating more
units. Through assembly line production, for
example, economies of scale helped propel
corporate growth in the twentieth century.
Economies of scope are economic considerations
that make manufacturing multiple products at the
same time more cost -effective than manufacturing them separately. The following is a basic
illustration of the contrast using the example of a
train: Rather than having two distinct trains, one for
passengers and the other for freight, a single train
can transport both passengers and freight for less
money. A single train with cars allocated to both
categories is significantly more cost effective in
this si tuation, and may also result in lower ticket or
tonnage expenses for the train's passengers.
3.7 CO -PRODUCTS
Co-production linkages between end products
might result in scope economies. These items are
referred to be complements in production in
economic terminology. This occurs when the
creation of one item results in the automatic
production of another good as a byproduct or side
effect of the manufacturing process. One product
may be a byproduct of another, yet it still has
value for the maker or for sale. Finding a useful
application or market for the co -products can help
to decrease waste and costs whil e also increasing
revenue.
Dairy farmers, for example, separate raw milk from
cows into whey and curds, with the curds
becoming cheese. They also get a lot of whey in the
process, which they can use as a high -protein feed
for animals to lower
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24
Media Economics their overall feed costs or sell as a nutritious product to fitness fanatics and
weightlifters to generate additional cash. Another example is the so -called munotes.in
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black liquor created during the paper pulping process.
Rather than being a waste product that wo uld be costly to dispose of, black
liquor can be used to power and heat the facility, saving money on other
fuels, or it can be converted into more advanced biofuels for use on -site or
for sale. Producing and using black liquor reduces the cost of paper
production. 1 Production Processes That Work Together
Direct interaction of two or more production processes can also result in
scope economies. The "Three Sisters" crops, which were historically
cultivated by Native Americans, are a famous example of companion
planting in agriculture. The Three Sisters approach boosts the output of
each crop while also improving the soil by planting corn, pole beans, and
ground trailing squash together.
The bean vines climb up the tall corn stalks, the beans fertilise the corn
and squash by fixing nitrogen in the soil, and the squash with its broad
leaves shadows out weeds among the crops. When all three plants are
grown together, the farmer can raise more crops for less money.
A modern example is a joint training programme between an aircraft
manufacturing and an engineering school, in which engineering students
work part -time or intern at the company. The engineering school can cut
its instruction al expenses by effectively outsourcing some teaching time to
the manufacturer's training managers, and the manufacturer can cut its
overall expenditures by receiving low -cost access to skilled workers.
Although the ultimate products (planes and engineer ing degrees) may not
appear to be direct complements or share many inputs, producing them
jointly lowers the cost of both.
3.8 INPUTS THAT ARE SHARED:
Because productive inputs (such as land, labour, and capital) are
frequently used for many purposes, economies of scale can often be
achieved by using the same resources to produce two or more different
goods. For example, a restaurant can produce both chicken fingers and
French fries at a lower average cost than two different businesses
producing each item separately. This is because during production,
chicken fingers and french fries can share the same cold storage, fryers,
and cooks.
Because it m anufactures hundreds of hygiene -related goods ranging from
razors to toothpaste, Proctor & Gamble is an outstanding example of a
corporation that effectively obtains economies of scope from common
inputs. The corporation can afford to hire high -priced g raphic designers
and marketing gurus who can apply their expertise to all of the company's
product lines, enhancing each one. If these team members are salaried,
each extra product they work on lowers the average cost per unit,
increasing the company's economies of scope.
25
Economies of Scale, of Scope And 3.9 DIFFERENT APPROACHES TO SCOPE Changing Technology
ECONOMIES
Mergers and acquisitions (M&A), newly discovered uses of resource by munotes.in
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products (such as crude petroleum), and when two producers agree to
share the same factors of production are all examples of the economics of
scope in action.
Scope economies are critical for any large corporation, and a company can
achieve them in a variety of methods. The first, and most often held, belief
is that efficiency can be gained by diversifying related activities.
Diversification offers enormous opportunity for economies of scale by
combining products that use the same inputs or have complementary
production methods.
Another option to generate economies of scale is to merge with or acquire
another company on a horizontal level. For example, two regional retail
chains may merge to consolidate distinct product lines and lower average
warehouse expenses. This type of product is ideal for developing
economies of scale through horizontal acquisitions because it can share
similar inputs.
Example of Scope Economies:
Assume that business ABC is the leading manufacturer of desktop
computers in the industry. Company ABC wishes to expand its product
line, so it renovates its manufacturing facility to produce a wide range of
electronic products, such as laptops, tablets, and phones. The average total
cost of production falls because the expense of operating the
manufacturing plant is spread among a variety of items. The price of
creating each electronic gadget in a separ ate building would be higher than
producing many goods in a single production facility.
What's the Difference Between Economies of Scope and Economies of
Scale?:
The notions of economy of scope and economy of scale are two alternative
approaches to reducing a company's costs. Economies of scope are
concerned with the average total cost of production of a wide range of
goods, whereas economies of scale are concerned with the cost advantage
that comes when a single good is produced at a larger level.
According to the notion of an economy of scope, the average total cost of
a company's production drops as the range of commodities produced
increases. When a corporation creates a complementary variety of
products while focusing on its core strengths, it has a cost advantage. The
idea of economy of scope is commonly misunderstood, particularly
because it appears to contradict the concept s of specialisation and scale
economies. Imagine that it is cheaper for two goods to share the same
resource inputs (if possible) than for each of them to have separate inputs.
This is a simple approach to think about economy of scope.
26
Media Economics Rail transit is a simple approach to demonstrate scope economy. Rather than having
two trains, one for passengers and the other for freight, a single train can
transport both passengers and freight for less money. Joint production in
this situation lowe rs total input costs. (In economic terms, this means that
after product diversification, the net marginal advantage of one input munotes.in
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factor increases.)
Company ABC, for example, is the industry's largest desktop computer
manufacturer. Company ABC wishes to expand its product line, so it
renovates its manufacturing facility to make a variety of electronic
products like laptops, tablets, and phones. The average total cost of
production falls because the expense of operating the manufacturing plant
is spre ad among a variety of items. The price of creating each electronic
gadget in a separate building would be higher than producing many goods
in a single production facility.
Mergers and acquisitions (M&A), newly discovered uses of resource
byproducts (su ch as crude petroleum), and when two producers agree to
share the same factors of production are all examples of the economics of
scope in action.
Scale economies are a type of economy that occurs when a large number
of people work
An economy of scale, on the other hand, is a company's cost advantage
resulting from increasing output of a good or service. The volume of
goods and services produced and the fixed costs per unit to a corporation
have an inverse relationship.
Assume th at business ABC, a computer processor vendor, is considering
purchasing CPUs in bulk. The business DEF, which makes the computer
processors, quotes a price of $10,000 for 100 processors. The producer
quotes a price of $37,500 if firm ABC purchases 500 c omputer processors.
If ABC decides to buy 100 CPUs from DEF, the cost per unit for ABC
will be $100. If ABC buys 500 processors, however, the cost per unit is
$75.
In this case, the producer is passing on to firm ABC the cost savings of
creating a bigger number of computer processors. This economic
advantage comes because the fixed cost of generating processors remains
the same whether 100 or 500 processors are pr oduced. When fixed costs
are covered, the marginal cost of manufacturing for each extra computer
processor tends to fall. Additional units mean higher profit margins at
lower marginal costs. It allows businesses to lower prices if necessary,
boosting t heir product's competitiveness. Due to realised economies of
scale, major warehouse -style stores like Costco and Sam's Club package
and sell large commodities in bulk.
Although a company's economy of scale may appear to be advantageous,
it has signific ant limitations. Marginal costs never go down indefinitely.
Eventually, operations grow too huge to benefit from economies of scale.
This forces businesses to either innovate, enhance their working capital, or
27
stay at their current optimal production level. For
example, if a company that makes computer
processors reaches its maximum manufacturing
capacity, the cost of each additional unit may begin
to rise rather than fall.
3.10 QUESTIONS 1. Explain in detai l – Economies of Scale.
2. Discuss – Economies of Scope
3. State the difference between Economies of scale munotes.in
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and scope. 3.11 REFERENCES
∙ Anupindi, Ravi, et al. Managing Business Process
Flows: Principles of Operations Management. 2nd
ed. Upper Saddle River, NJ: Pearson/Prentice Hall,
2004.
∙ ―Diseconomies of Scale.‖ Available from:
http://www.investopedia.com/terms/d/diseconimies
ofscale .asp.
∙ ―Diseconomies of Scale.‖ Available from:
http://www.tutor2u.net/economics/content/topics/b
useconomics/disec onomies.htm .
∙ ―Economies of Scope.‖ Available from:
http://www.tutor2u.net/economics/content/topics/b
useconomics/econo mies_of_scope.htm .
∙ Kass, David I . ―Economies of Scope and Home
Healthcare.‖ Health Services Research 33, no. 4
(1998). ∙ Raturi, Amitabh S., and James R. Evans.
Principles of Operations Management. Mason,
OH: Thomson/South -Western, 2005.
∙ Weiss, Ri ck. ―Report Urges Huge Changes to
Factory -Farming Practices.‖ The Washington Post
30 April 2008. Available from:
http://www.washingtonpost.com/wp
dyn/content/article/2008/04/29/AR2008042902602.
html.
∙ ―What Are Economies of Scale?‖ Available
from:
http://www.investopedia.com/printable.asp?a=artic
les/03/012703.asp
*****
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4
CONVERGENCE, WHAT ARE MULTI
MEDIA PLATFORMS, THE VERTICAL
SUPPLY CHAIN
Unit Structure
4.1 Convergence
4.2 Convergence Models
4.3 Convergence Model of Flynn
4.4 Gordon's Convergence Model
4.5 Convergence Model Dds:
4.6 What Are Multi -Media Platforms?
4.7 Importance Of Multi -Media Platforms
4.8 What Is A Vertical Supply Chain?
4.9 Vertical Integration: An Overview
4.10 Taking Control of The Supply Chain
4.11 Types of Vertical Integration
4.12 Vertical Integratio n's Benefits and Drawbacks
4.13 When Is A Vertical Integration Acquisition Considered?
4.14 Is Vertical Integration Beneficial To A Business?
4.15 Questions
4.16 References
4.1 CONVERGENCE
The combining of mass communication sources such as print, television,
and radio, the Internet, and portable and interactive technology through
various digital media platforms is known as media convergence. Media
convergence enables journalists to use a range of media to tell stories and
deliver information and entertainment. Converged communication offers a
variety of narrative methods, allowing users to choose their amount of
engagement while controlling content delivery.
The propensity for diverse technical systems to move toward performing
similar tasks is known as technological convergence. Voice (and
telephony features), data (and productivity applications), and video were
once independent technologies that now share resources and interact
synergistically.
Media organisations (or individuals) can now distribute text, audio, and
video content through the same wired, wireless, or fiber -optic links thanks
to the growth of digital communication in the late twentieth century. At
the same time, it prompted othe r news organisations to investigate the use
29
of multimedia in the transmission of information.
In his 1997 book of the same name, researcher Roger Fidler coined the term "Mediamorphosis" to
describe the digital convergence of new s media in munotes.in
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particular. Today, we live in a multi -level
convergent media world, in which all means of
communication and information are constantly
reforming to adapt to the ever -changing needs of
technology, "changing the way we produce,
consume, learn, and engage with one another."
The interlinking of computing and other
information technologies, media content, and
communication networks that has arisen as a result
of the evolution and popularisation of the Internet,
as well as the activities, products, and services
that have emer ged in the digital media space, is
referred to as convergence in this case. Many
experts believe that this is just the beginning, as
all aspects of institutional activity and social life,
such as business, government, art, journalism,
health, and educat ion, are increasingly being
carried out in these digital media spaces across an
expanding network of information and
communication technology devices.
The term "convergence" refers to the meeting of
ancient and modern media. "The movement of
content a cross numerous media platforms, the
cooperation between multiple media businesses,
and the migratory tendency of media audiences,"
according to Jenkins.
Media convergence is more than just a technology
transition or process; it also encompasses shifts in
industrial, cultural, and social paradigms that push
consumers to seek out new information. Simply
put, convergence is the process by which individual consumers interact with others on a
social level and use various media platforms to
create new expe riences, new forms of media, and
new forms of content that connect us socially, not
just to other consumers, but also to corporate
media producers in ways that were previously
unavailable.
Advances in technology enable technological
convergence, which Rheingold says can modify
"social -side impacts" by "colliding, integrating,
and coordinating" the virtual, social, and physical
worlds.
In the 1990s, it was prophesied that a digital
revolution would occur, with old media being
pushed aside by new medi a. The Internet is
progressively replacing broadcasting, allowing
customers all over the world to obtain their
favourite media content more quickly and at a
faster rate than ever before.
Web 2.0 is a concept that uses the Internet's
network as a platfo rm for sharing information,
interoperability, user -centered design, and
collaboration. Users can participate and
collaborate in a social media discourse as makers
(prosumers) of user -generated content in a virtual
community, in content that was develop ed for
them, on a Web 2.0 site. In contrast to websites
where users (consumers) are limited to passive
consumption of content, Web 2.0 sites include
social networking sites,
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Media Economics blogs, wikis, and video sharing sites, as well as hosted services, web applications,
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Convergence's Implications: The transition from analogue to digital data
transmission has enabled massive amounts of data to be transmitted with
fewer resources. Convergence is both the cause and the effect of
developments in communication technology. C onvergence is a phrase that
is currently in flux. To improve our knowledge, we need to settle on a
definition. Grant (2009) takes a look at a variety of existing definitions. By
combining these concepts, one can deduce that convergence is a type of
intertextual information distribution that uses digital transmission
technologies. Because of the emphasis on the mass media, this concept
emphasises content delivery over communication.
To better appreciate how these shifts are affecting mass communicatio n
professionals, we need to concentrate our focus to convergence
journalism. Criado and Kraeplin (2009) define it in a highly practical way.
Convergence journalism, according to them, is defined as print, broadcast,
and online newsrooms forming partner ships in which journalists
collaborate and deliver material across several channels. These tactics
have been attempted to be implemented by media companies in order to
boost efficiency and audience reach.
Newspapers appear to have done a better job of putting these principles
into action than television stations. Newspapers, it appears, stand to earn
more from convergence journalism (Criado & Kraeplin, 2009). When
compared to television stations, newspapers have a distinct disadvantage
in terms of t raditional delivery. Newspapers must be sought for, whereas
television channels are provided to a person's home for free over the air.
It's simple to see how collaborating with a television station and
transitioning to the Internet may have a significan t impact on newspapers.
Convergence has had the good consequence of allowing customers to have
more knowledge due to increased efficiency in content generation and
delivery. Because of collaborations with newspapers, television stations
are able to produce more in -depth report s. Newspapers and television
stations are permitted to distribute complete multimedia accounts of
events via the Internet.
One disadvantage of convergence journalism is that it allows fewer
interests to influence the information that is supplied to the general public.
Media Consolidation is the term for this limitation of voices. The resulting
media behemoths have been subjected to a barrage of criticism.
Fortunately, as media consumers become more technologically adept, they
are increasingly taking up the role of journalist. Anyone with a cell phone
or camera can take images or videos of a news event or newsmaker and
share them online, according to Kolodzy (2009). As a result, information
dissemination has become more democratic. The traditional gatekeepers
are gradually losing total control over the information that is allowed to
flow to a large number of people. Of fact, there is a current tendency in
31
this direction. According to Grant (2009),
analysing a trend that is still in progress is
dangerous.
Regulative or market factors may force this democratisation of information to come to an end.
4.2 CONVERGENCE MODELS
The Convergence Model of Nicholas munotes.in
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Negroponte:
Ithiel de Sola Pool was the first media researcher
to describe convergence in his book
'Technologies of Freedom,' which studied the
interconnection of diverse media.
In 1979, Nicholas Negroponte developed a
convergence model based on three intersecting
circles, which may have been the first time the
term "media convergence" was used in media
studies. The circles represent the merging of three
media industries into a single organisation. The
media conve rgence discussion has continued in
these circles. Convergence has been used to
describe everything from organisational structures
to new high -tech discoveries to mergers of media
firms over the years as an outcome rather than a
process.
4.3 CONVERGENCE MODEL OF
FLYNN
In the digital world, Flynn (2000) outlines three
areas of convergence.
Devices, Networks, and Content are the three
components that make up the Internet of Things
(IoT).
According to Flynn, device convergence occurs
when two devices are combined. The question is
whether or not people will use these combined
devices.
Convergence, What Are Multi Media Platforms, the Vertical Supply Chain
32
Media Economics According to Flynn, convergence will not occur unless the resulting hybrid is
adapted by consumers. The discussion and development of the formerly
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popular concept of a "electronic information superhighway," which
denoted a broadband -switched network inf rastructure, led to network
convergence.
In Flynn's opinion, content convergence is limited because he feels that
technological constraints still prevent the use of the same type of content
across all publication outlets. Flynn contends that the traditional
understanding of convergence exagger ates the benefits of the possible
arrival of "write -once, run -anywhere" material, and instead proposes a
fourth sort of convergence: consumer convergence. Flynn appears to have
taken a philosophical approach to device convergence, stating that it does
not exist until people are willing to utilise the new devices. However, if
the devices exist, device convergence must have occurred. regardless of
consumer readiness to use it in the development of the new device
4.4 GORDON'S CONVERGENCE MODEL
Ownershi p, tactical, structural, information gathering, and storytelling
convergence are the five types of convergence identified by Gordon
(2002). Convergence of ownership might be equated to a merger of
businesses. Tactical convergence is a type of cross prom otion, whereas
structural convergence is a process occurring within editorial departments
that influences editors to become more multimedia editors.
According to Gordon, the information -gathering convergence is best
defined as a type of backpacking journalism in which reporters bring all of
their equipment with them and produce content for all possible publication
channels.
According to Gordon, sto rytelling convergence is about innovative
methods to communicate information across various publishing outlets.
4.5 CONVERGENCE MODEL DDS
The 'Convergence Continuum' was proposed by Dailey, Demo, and
Spillman (2003) as a model of convergence. Because the authors believe
33
there is a lack of a consistent, behaviour -based
definition of convergence and a common tool for
detecting convergence effects, they developed the
model.
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As a result, they propose a model for newsroom
content sharing convergence, with the goal of
making it easier for academics all around the
world to compare results. Five partially
overlapping zones, or 5 Cs of convergence, make
up the model.
4.5.1 The Lawson -Borders Convergence Model:
Another model of convergence proposed by
Lawson -Borders (2006) is based on the idea that
convergence is both a notion and a process. She
does not go into as much detail about content
creation as the Convergence Continuum does, and
instead takes a more t echnological approach.
Convergence, she believes, can be defined as the
marriage of technology and content distribution
via computer technology.
Communication, commitment, cooperation,
compensation, culture, competitiveness, and
customer are the seve n 'observations' of
convergence outlined by Lawson -Borders, all of
which begin with the letter C. These seven topics
overlap in some ways and can be used as a
guideline for best practises in elaborating on
convergence as a concept and a process.
4.5.2 The Convergence Model of Henry
Jenkins:
Jenkins (2001) avoids attempting to incorporate
multiple types of convergence into a single
model. He explains that the difficulty in defining
convergence stems from the fact that individuals
use the term in a variety of circumstances.
Technological, ec onomic, social or biological,
cultural, and global convergence are the five
categories in which he divides convergence.
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Media Economics
The digitalization of all media content is technological convergence;
economic convergence is concerned with the integration of the
entertainment sector; and social or organic convergence is concerned with
consumers' multitasking techniques for navigati ng the new information
environment.
4.6 WHAT ARE MULTI -MEDIA PLATFORMS?
Any content that combines different content forms such as text, audio,
photos, animations, video, and interactive information is referred to as
multimedia. Information content processing devices, such as computerised
and electronic devices, can record a nd play multimedia, as well as display,
interact with, and access it. Multimedia platforms are places where you
may create, share, and view this type of material. Multimedia platforms, as
a result, provide a wide range of communication and educational
applications to business audiences. Business presentations, blogs, wikis
and podcasts are all fantastic instances of how multimedia platforms may
get the information across.
Creating and delivering successful corporate presentations is one of the
most prevalent uses of multimedia platforms today. Although paper
handouts, flip charts, and props are still used, they can be ineffective in a
number of ways.
Handouts are normal ly printed on paper and have two primary drawbacks.
First, they tend to divert the audience's attention away from the presenter,
who prefers to read ahead rather than listen. Second, handouts run the risk
of falling into the wrong hands, whether they be unauthorised employees
or competitors. Flip -charts have a number of drawbacks. To begin, talent
as well as professional tools and resources are required to create an
outstanding flip -chart image. Second, they are inconvenient to move and
are out of da te in their application. For today's business presentations,
props are likewise regarded outmoded and clichéd.
4.6.1 Presentations:
PowerPoint, Keynote, Adobe Presenter, and Prezi can all create
multimedia slides that can be used as the foundation for great
presentations. Professional colour, visual, and font capabilities are
35
provided by these apps, which ai d in the better
expression of the presenter's thoughts. They can integrate video, audio and hyperlinks into the
presentation, offering a perfect platform for a
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successful meeting.
Information is processed differently by various
people. The same content can be delivered in a
variety of ways using multimedia platforms. Using
a combination of text, visuals, and sound to
accentuate your message and capture people's
attention at vario us moments throughout the
presentation can help you stand out. An
incorporated customer testimonial video can help
to reinforce a message of exceptional service
while also providing the presenter more
credibility. Special effects, such as automated text
highlighting or underlining on a slide, can help
break up word -heavy slides if used sparingly.
Despite the dazzling experience multimedia
presentations can deliver, success is still
contingent on the presenter's understanding of the
audience and fram ing of topics that are essential
to them. You may be familiar with the "Death By
PowerPoint" condition, in which the audience is
rendered immobile by a never -ending stream of
slides. Module 8: Developing and Delivering
Business Presentations will go ove r multimedia
business presentations in greater depth.
4.6.2 Blogs:
The blog is another multimedia channel for
efficiently communicating with business
audiences. A blog is a website that features
journal -style postings on a variety of topics with
the g oal of informing readers and eliciting
feedback. In business, blogs are used to communicate with customers and employees.
Customers can use blogs for market research,
public relations, customer outreach, and feedback
solicitation. Here are two examples of excellent
customer service blogs: a Starbucks customer
service blog and a Coca -Cola customer service
blog.
4.6.3 Wikis:
A wiki is a web -based platform that is used to
store information. Wikis are collections of
information compiled by an online community of
contributors. Private intranets are used to maintain
wikis within the company firewall in a business
setting becaus e they are the repository of sensitive
company procedures and operations. All corporate
locations, including remote employee offices, can
readily access information such as travel
expenditure policies, HR rules and forms, internal
contact directory, pr evious quarter's financial
press release, and so on.
4.6.4 Podcasts:
Podcasts are another multimedia tool utilised for
effective business communication, in addition to
presentations, blogs, and wikis. Podcasts can use
all of the concepts we've covered so far in this
session, but they're largely video and audio -based.
Podcasts can be streamed live or recorded to be
listened to later.
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Media Economics 4.6.5 Social Media:
External and internal use of social media networks in company munotes.in
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communication can be separated into two groups.
External Applicability:
Companies use well -known social media sites such as Facebook, Twitter,
Pinterest, and LinkedIn to connect with large online public groups. These
communities have millions of users (Facebook has billions), so it's no
surprise that they're appealing to bu sinesses for a variety of marketing
purposes.
Use within the company:
Internal use of social media is the second type of social media in company
communication. Many large corporations have internal social media sites
that are solely accessible to staff. Many of these follow the Facebook
model, but they rely on software pl atforms from Salesforce, Yammer, and
Jive. This is a significant usage of social media because it allows huge
firms to effortlessly link employees across diverse sites and keep them
informed of critical information in an easily digestible style.
4.7 IM PORTANCE OF MULTI -MEDIA PLATFORMS:
Multimedia is a term that combines the words multi and media. The term
media (medium) has a double meaning: it refers to a device that stores
data on a disc, CD, tape, semiconductor memory, and other devices.
Second, information carriers such as numbers , text, voice, images, and so
on are transmitted.
As a result, the comparable phrase is multimedia, which literally means
that the media is compounded by a single medium. Anything you watch or
listen to is considered multimedia. It includes visuals, audio, sound, text,
and a variety of other elements. Information content processing devices,
such as computerised and electronic gadgets, usually record and play,
display, or access this. Multimedia refers to the combination of picture,
sound, graphics, images, text, text, animation, and other media to fo rm an
organic whole with the goal of achieving a specific function.
All current technologies have two elements to them, and the media is one
of them. It consists of hardware and software, or a combination of
machines and concepts. Control systems and i nformation are two
categories of multimedia technology and characteristics. Multimedia The
CD-ROM is the primary medium for storing and exchanging data. The
computer business cannot sell hundreds of megabytes of multimedia
programmes for audio, visual, and text data without such a convenient
CD-ROM. We are no more passive audiences when it comes to
multimedia; we can influence, interact, and have it done according to our
wants. We can have direct access to crucial facts in a report, regardless of
how useless the information is. It may also be of interest to the reports and
37
photographs gathered from throughout the world.
Multimedia can be stored, transmitted, shown,
and interpreted in a variety of ways.
In other words, it is a good means of communication. Multimedia plays a vital function
in today's society because everything has to stay
up with the times in today's society. Multimedia is
an effective means of communication because it
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what others are saying. Then there's multimedia,
which includes animation, music, video, and
more.
This makes it easy to get others to pay attention to
what you're saying. It has also piqued people's
curiosity in hearing an d seeing what you have to
say when you promote a product. Multimedia can
also help you deliver your message more
effectively. They can watch what you do in
multimedia if they don't understand what you say.
Because multimedia simplifies things, they can
understand them more easily.
They used multimedia in programming, radio, the
internet, and universality in this. You've now had
a multi -sensory visual and aural experience. Other
people will not be able to read that boring book
since it contains anima tion, music, and
movement. Is the city doing the media under our
control, so we can use our imagination to create a
dynamic multimedia? When giving a
presentation, we cannot rely solely on words.
Because the sauce will lead the guests to places
they don 't want to go, they will become bored.
As a result, when we do a briefing, we must not
simply expand the number of animation writers,
musicians, or videographers. We can also create a
dynamic point typeface that will pique the
curiosity of your visitor s. Other multimedia files, such as video, image, and flash memory, will not
only assist you in improving your visual abilities,
but will also provide additional benefits to users.
Multimedia can also be used on the internet; this
includes not only ass isting in the creation of more
multimedia websites, but also assisting in the
creation of more multimedia website users'
interests. However, it will aid in attracting more
links to your site, which will assist you improve
your ranking. As a result, crea ting a multimedia
project or a Web site demands more than just
writing skills and a higher level of education. A
decent organisation and business skills are
required.
4.8 WHAT IS A VERTICAL SUPPLY
CHAIN?:
In the literature on supply chain management
(SCM), supply chain integration is a widely
discussed topic. Companies must make sensible
decisions on acceptable governance models for
efficient supply chains in order to expand – and
sometimes to survive. T his includes open spot
markets, hybrid forms such as collaboration,
alliances, and joint ventures, as well as
contracting and full vertical integration (e.g.
Hobbs, 1996).
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strategic management and organisational economics experts contributing
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integration is viewed as one extreme of vertical supply chain coordination
(e.g. Hobbs and Young, 2000) or as a forerunner to supply chain
integration in the SCM literature (e.g. Stonebraker and Liao, 2006).
Strategic supply chain concentration is a major concern for indus trial
companies. Vertical integration refers to the ownership of practically the
whole supply chain by some corporations, such as the Spanish clothing
retailer Zara, from design and production to distribution and logistics to
outlets all over the world . Benetton, The Gap, and Hennes & Mauritz,
among Zara's retail clothes competitors, continue to rely on overseas
production partners through complete or substantial outsourcing (Ferdows
et al., 2004).
Integration is widely regarded as the most critical feature of well
functioning supply chains, according to several academics (e.g. Richey et
al., 2009). Simultaneously, the widespread use of outsourcing has forced
many supply chains to become more specialised, emphasising the
importance of cross -compan y integration. Some theorists even claim that
outsourcing can improve supply chain efficiency (Kroes and Ghosh,
2010).
Despite the fact that outsourcing is common in some industries and
segments, it has been suggested that diverse economic and technological
circumstances necessitate alternative supply chain governance solutions
(Grossman and Helpman, 2002; Rothaermel et al., 2006). In fact, the
buying firm's outsourcing can be considered as the supplying firm's
downstream vertical integration, with the vertical integration resulting
from the customer's outsourcing strategy.
This research, on the other hand, focuses o n a manufacturer's purposeful
strategy of vertically downstream integration.
Manufacturing companies benefit from downstream integration in a
variety of ways. First, it can assist companies in securing product
distribution channels, particularly in mar kets with heightened uncertainty
(Rangan et al., 1993). Second, it can provide a means of controlling supply
chain efficiency gains and cost savings (Frohlich and Westbrook, 2001).
Third, downstream markets can provide significant benefits in addition t o
big new revenue streams (Wise and Baumgartner, 1999).
Manufacturers must shift their attention from operational excellence to
customer loyalty and redefine the notion of vertical integration in order to
capture value downstream (Wise and Baumgartner, 1999).
Vertical integration is a business approach that allows a corporation to
streamline operations by taking full control of various stages of the
manufacturing process rather than depending on outside contractors or
suppliers.
39
Rather than outsourcing, a corporation might
achieve vertical integration by purchasing or
establishing its own suppliers, manufacturers,
distributors, or retail outlets.
Vertical integration has a number of drawbacks, one of which being the large init ial capital
expenditure required.
4.9 VERTICAL INTEGRATION: AN
OVERVIEW munotes.in
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Vertical integration is exemplified by Netflix, Inc.
Before going into online streaming of films and
movies licenced from big studios, the company
began as a DVD rental company.
Then Netflix executives learned that by producing
some of its own original material, such as the
successful shows Grace & Frankie and Stranger
Things, they might increase their profit margins. It
also made several duds, such as 2016's The Get
Down, whic h cost the studio $120 million.
Netflix now promotes its original content
alongside studio -licensed television through its
distribution approach.
This also exemplifies the dangers of vertical
integration. A successful original series can
attract new s ubscribers while also retaining
existing ones. A Netflix original bomb is
significantly more expensive than a studio -
licensed bomb.
4.10 TAKING CONTROL OF THE
SUPPLY CHAIN
The supply chain or sales process of a typical
company starts with the procurement of raw
materials from a supplier and finishes with the
selling of the finished product to the consumer. A corporation must control two or more of the
phases involved in t he creation and selling of a
product or service to be considered vertically
integrated. A previously outsourced element of the
production, distribution, or retail sales process
must be purchased or recreated.
Companies can lower manufacturing costs by
vertically integrating by purchasing their
suppliers. They can put money into the retail end
of the process by establishing websites and
physical locations. To control the distribution
process, they can invest in warehouses and van
fleets.
All of these processes demand a large commitment
of money to develop up facilities and hire extra
personnel and management. Vertical integration
also results in the company's operations becoming
larger and more complex.
4.11 TYPES OF VERTICAL
INTEGRATION
A corporation can accomplish vertical integration
in a variety of ways. Backward and forward
integration are two of the most prevalent.
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a point earlier in the supply chain or manufacturing process.
Amazon.com, Inc. began as an online bookstore selling books from well
known publishers. It still does that, but it has also branched out into
publishing. Eventually, the company expanded into thousands of branded
products. Then it launched its own privat e label, Amazon Basics, to sell
many of them straight to consumers.
Integration in the Future:
Forward integration allows a company to grow by obtaining control of the
distribution process and the selling of its finished products.
A clothes manufacturer can sell its finished goods to a middleman, who
then distributes them to various retailers in smaller batches. Alternatively,
the firm can open its own retail outlets. If the company's retail division
runs well, it will bring in m ore money per product.
4.12 VERTICAL INTEGRATION'S BENEFITS AND
DRAWBACKS
Vertical integration can assist a business in lowering costs and increasing
efficiency. However, the firm's attempts may backfire.
Advantages:
∙ Transportation expenses and turnaround times are reduced.
∙ Supplier disruptions and quality issues are reduced.
∙ Economies of scale result in lower costs.
∙ Profitability has increased
Disadvantages:
∙ The difficulty and cost of the total procedure may be underestimated by a
corporation.
∙ Outsourcing to a company with more experience could be a better option.
∙ The initial investment is substantial.
∙ Capital expenditures may need more debt.
∙ Vertical Integration in the Real World
Vertical integration is exemplified by the fossil fuel sector. ExxonMobil,
British Petroleum, and Shell all have exploration departments that look for
41
new oil sources, as well as businesses dedicated to
extracting and refining it. The finished product is
transported by their transportation departments.
Their retail sections run the petrol stations where
their goods is delivered. Live Nation and Ticketmaster merged in 2010 to
become a vertically integrated entertainment firm
that manages and represents artists, produces
performances, and sells tickets for events. The munotes.in
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united firm is in charge of managing and owning
music venues, as well as selling tickets to events
held there.
From the standpoint of Ticketmaster, this is an
example of forward integration, and from the
standpoint of Live Nation, this is an example of
backward integration.
4.13 WHEN IS A VERTICAL
INTEGRATION ACQUISITION
CONSIDERED?:
If a firm gains direct control over a significant
portion of its manufacturing or distribution
process that was previously outsourced, this is an
example of vertical integration.
A company's acquisition of a supplier is known as
backward integration. Forward integration refers
to the company's acquisition of a distributor or
store. In the latter situation, whether it was a
wholesaler or a retailer, the firm is frequently
buying a customer.
4.14 IS VERTICAL INTEGRATION
BENEFICIAL TO A BUSINESS?
When considering vertical integration, a corporation must assess which option is better for
the organisation in the long run.
If a corporation produces clothing with buttons, it
can eit her buy or fabricate the buttons. The
button -markup maker's is eliminated by making
them. It may provide the organisation more
leeway in terms of changing button styles and
colours. It has the potential to eliminate the
difficulties
associated with working with a supplier.
The corporation would then have to build up or
purchase a separate button manufacturing process,
buy the raw materials needed to create and attach
buttons, recruit personnel to make the buttons, and
hire a manage ment team to oversee the button
division.
Before making this buy or make decision, a
corporation must carefully consider the costs and
complications of vertical integration.
What Is the Difference Between Vertical and
Horizontal Integration?:
The acquisition of a competitor or a related
business is referred to as horizontal integration.
This could be done to eliminate a competitor,
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42
Media Economics strengthen or diversify a company's main business, expand into new markets, or
boost overall sales. munotes.in
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Vertical integration entails the purchase of a critical supply chain
component for which the company has previously contracted. It has the
potential to lower the company's costs and offer it more control over its
products. It has the potential to boost the company's profits in the long run.
4.15 QUESTIONS
4. Explain in detail „Media Convergence‟.
5. Discuss the Convergence Models.
6. Write a note on Multi -Media Platforms and its importance.
7. Explain Vertical Supply Chain with its types.
8. Discuss Vertical Integration's Benefits and Drawbacks
4.16 REFERENCES
∙ Adelman, M.A. (1955), ―Concept of statistical measurement of vertical
integration‖, in Stigler, G.J. (Ed.), Business Concentration
and Price Policy, Princeton University Press, Princeton, NJ, pp. 279 -
328
∙ Anderson, J.C. and Narus, J.A. (1995), ―Capturing the value of
supplementary services‖, Harvard Business Review, Vol. 73 No. 1,
pp. 75 -83.
∙ Arya, A., Mittendorf, B. and Sappington, D.E.M. (2008), ―Outsourcing,
vertical integration, and price vs quantity competition‖,
International Journal of Industrial Organization, Vol. 26 No. 1, pp. 1 -
16
∙ Bain, J.S. (1968), Industrial Organization, Wiley, New York, NY
∙ Balakrishnan, S. and Wernerfelt, B. (1986), ―Technical change,
competition and vertical integration‖, Strategic Management Journal,
Vol. 7 No. 4, pp. 347 -59.
∙ Barratt, M. (2004), ―Understanding the meaning of collaboration in the
supply chain‖, Supply Chain Management: An International
Journal, Vol. 9 No. 1, pp. 30 -42.
∙ Barratt, M. and Oke, A. (2007), ―Antecedents of supply chain visibility
in retail suppl y chains: a resourced -based theory
perspective‖, Journal of Operations Management, Vol. 25, pp. 1217 -
33.
43
∙ Barrera -Rey, F. (1995), The Effects of Vertical
Integration on Oil Company Performance, Oxford
Institute for Energy Studies, Oxford, October ∙ Barreyre, P.Y. (1988), ―The concept of
importation policies: a different approach to
vertical integration strategies‖, Strategic munotes.in
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Management Journal, Vol. 9 No. 5, pp. 507 -20.
*****
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5
CHANGING MARKET STRUCTURE AND
BOUNDARIES, DIGITAL CONVERGENCE
Unit Structure
5.0 Objectives
5.1 Introduction
5.2 Market Structure of Media
5.2.1 Economies of Scale in Media Industry
5.2.2 Effects of Internet on Media Industry
5.3 International Film Industry Market
5.4 Contemporary Market
5.4.1 Newspaper
5.4.2 DTH
5.4.3 OTT
5.5 Economics of Internet Media
5.6 Indian Market
5.7 Convergence Media
5.8 Questions
5.9 References
5.0 OBJECTIVES
After reading this unit you will be able to understand:
∙ Types of Competition in the Market
∙ Nature of Media Market
∙ Contemporary Media Market
∙ Media Convergence and its Boundaries
5.1 INTRODUCTION
The market structure shows how companies are classified based on the
categories of goods they sell. Firms are differentiated based on how they
operate and how they are affected by external circumstances.
Homogeneous and heterogeneous are the two types o f goods available in
the market that affects and differentiate the firms. Let us first define what
media market structure is before discussing how it is changing. There is no
such thing as a market that isn't crowded. The market's structure is
determin ed by the presence and dominance of monopolistic competitors,
monopolists, oligopolists, and duopolists.
45
Monopolistic Competition is when there are a
large number of vendors and purchasers in the market. However, product differentiation in terms
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For instance, television programmes on several
stations. The product, the goal, and th e services
are all the same. However, the concept's quality
differs across channel. The diversity of web -series
programmes across networks have expanded as a
result of globalization. Amazon Prime, Netflix, and
Zee5 are a few examples. These are network s and
providers of the same type of product and service
with price and quality variations.
Monopoly is where there is a single seller exists in
the market as a whole. Monopolist market has the
highest barrier to entry. The most difficult to enter
is a monopolistic market. Where the market is
completely controlled by a single seller. He's also
in charg e of determining the price. A small town
with only one radio station or news channel is an
example. Consumers will flock to the only player
in the market. As a result, any new comer would
be met with fierce opposition..
Although the term monopoly is fr equently used in
commercial media conversations. Critics
frequently use this term to describe media giants
such as Disney and Time Warner, among others.
However, in the media, this word does not fit. In
the same way that the media market is dominated
by a small number of players, this type of market is
called Oligopoly. Oligopolistic enterprises wield a
considerable degree of influence, yet they also
compete with one another and with smaller
businesses. Oligopolistic partnerships are
sometimes descri bed by limited competition, or competition that isn't as open as full -fledged, free -
market competition.
Oligopoly refers to the market structure where
only small number of firms operate together
controls the majority of the market share.
Example: Comca st, NBC, Disney‘s ABC, CBS,
and FOX are the broadcast networks that own
nearly all broadcast and cable outlets.
Duopoly or twinstick is a situation in television or
radio broadcasting in which two or more stations
in the same city or community share com mon
ownership.
2. Market structure of Media:
The development of technology has brought quite
a difference in every aspects of media. Thus an
argument is required about the expected societal
benefits from the diverse nature of media. There
are many segments in media like; music, games,
films, inter net, comedy, drama, news etc. Each
one them contribute to the market structure of
media industry. The operation of a very media
outlets make the media economy. Now in the form
of product these media outlets produce content,
which once developed then re main the same, and
only the efficiencies are increased with sustainable
standardized strategies. Example; TV series once
designed then released in the market with
uniqueness is implemented in every episode.
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Media Economics 5.2.1 Economies of Scale in Media Industry: munotes.in
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Economies of scale are referred to as cost advantages that a company gets
by altering its levels of production processes. The company gets its
advantages through economies of scale due to the inverse relationship that
exists between per unit fixed cost and the quantity produced. The lesser
the quantity of produce, greater will be the per unit fixed cost of the
product. The best example to understand economies of scale in media is
the cost of production of movie. The cost in the production of movie is
fixed and once produced the number of audience doesn‘t affect the cost of
the production. Similarly, the television program has a fixed cost of
production and it is also an independent variable. Because it doesn‘t affect
by the number of people who wil l watch it. But yes, after the program is
released the variation in the number of audiences may affect the demand
and supply of the product.
Let's have a look at how the various media outlets operate. When the
popularity of a show begins to fade, netwo rk officials may consider
creating a new product, such as a new show, to air during a specific time
period. They'll encourage producers and writers to submit program ideas
that they believe will appeal to the general public, then develop a few
pilots, test the pilots with an audience panel, and order episodes of the
series that they believe will work.
Similarly, executives in the music industry are continuously on the
lookout for new talent. They believe that a performer in a specific genre,
such as classic, western, or hip -hop, will be more popular than a well
known jazz musician. When it comes to the film industry as a whole, it
occupies a unique place in the country's economy. It also has a prominent
position in the media industry because it gen erates a lot of money. The
film industry does not only produce money at the box office; it also
encourages people to make money on other platforms. For example, there
was a time when DVD was all the rage. However, the Internet, as well as
other website s and apps, has mostly superseded the DVD.
5.2.2 Effect of Internet on Media Market:
Internet is playing a vital role in changing the prevailing media market. It
has become a platform for everyone from common people to big brands to
communicate with each other. Any industry interacting with customers
through digital and social media pla tforms have has shaped the new media
market. The modern day marketing needs to be very creative to meet the
people‘s aspiration. Internet being a giant platform for fruitful interaction
and profitable output ask for good amount of money and efforts.
Therefore, it is considerably a large part of revenue generator and game
player in media market. Internet has been the fastest growing medium for
advertisements. Globally, Internet is growing energetically. Infect, it has
become notably very important sin ce after the industry has reached a
consensus about how to collect, aggregate, and apply specific metrics and
able to supply them.
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Boundaries, Digital Convergence 5.3 INTERNATIONAL FILM INDUSTRY MARKET: Changing
Market Structure And
The Lumiere Brothers popularized cinema in the year 1895. The notion of munotes.in
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commercialising film came from the audiences who admired and praised
the Lumiere Brothers' work. That is how art and photography paved the
path for new ventures around the world. People were entertained in the
18th century by roadside entertainers and fairs, which attracted many
musicians, travelling showmen, and clowns.
The 19th century, on the other hand, proved to be a de -regulator for the
entertainment business. Many new entrants to the market were encouraged
to do so. The United States played a critical role in encouraging new
market participants to invest and e xpand their businesses. Following
deregulation, the inventive market attracted a slew of new entrants eager
to invest and boost the global film industry's productivity. For the first few
years after the film market's existence, the United States, along with a few
other countries, was the dominant player. Though these countries continue
to play an essential part in the global film industry, numerous new entrants
from other countries are making significant revenue from the film market
in the media sector.
Edison's coin -operated invention During the 1880s, kinematography was
frequently seen at fairs and amusement venues. To see the film, viewers
had to put a coin in a slot and look through spectacles. Later, the name
Kinematogrph was replaced with cinematograph. Lumière had a team to
operate the cinematograph and project the film, which they carried across
the world with them to project the film. The initial projection attracted a
large crowd, which was extremely encouraging for Lumière and his team.
At the time, a film consisted solely of images and sequences of images.
Films became a regular part of the satirical and theatre programming after
a few years. Gypsy cinema arose at the same time, with cinemas that set
up shop in a tent or theatre and travelled the country.
Films were then advertised and looked for worldwide distributors as an
intermediary product. Many movie theatres have been built around the
world to show films. While the amount of rent paid fluctuated based on
perceived quality, general supply and demand, and the ticket price. It was
highest in city Centre first -run cinemas and lowest in local theatres. Films
were used at cinemas to provide hours of entertainment.
To ensure that earnings exceeded theatre fi xed costs, film studios
converted films into branded commodities. With the introduction of the
feature film, they began to pay large sums to actors, actresses, and
directors, as well as for the rights to renowned plays and novels. This is a
fascinating aspect of the film industry that many people are still fascinated
even today. The huge sums spent on celebrities and stories, on the other
hand, are not as random and arbitrary as they look. They could actually be
just as 'rational' and give a measurable return as direct marketing and
promotion spending. (Bakker, 2001).
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Media Economics 5.4 CONTEMPORARY MARKET
Since liberalization, there has been a significant increase in media
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internet penetration have resulted in a thriving media industry. The
traditional media has been changed and turned in to a new media as a result
of audience demand. And that new technologies are causing the media
economy to develop. The market structure of media, as well as the source
of income, has altered as a result of digitization due to the advent of new
technolo gies. The market is being driven by rising demand for video and
digital content. And it will continue to embrace the media market's future.
However, events such as the coronavirus pandemic have created a
significant shift in market structure, such as theatre attendance. The film
and video market includes production, distribution, post -production
services, film and video theatres, and other film and video industries.
According to the news website businesswire.com, the film and video
production market accounted for 63.8 percent of the total in 2020, making
it the largest segment of the film and video industry by type.
Post-production servi ces are expected to expand at an annual rate of 8.2%
from 2020 to 2025, making them the fastest -growing category in the film
and video market by type. The film and video market includes genres like
action, horror, humour, documentary, drama, and others. In the film and
video market in 2020, drama was the most popular genre sector,
accounting for 24.8 percent of the total. The others market is predicted to
grow at the quickest rate in the film and video market split by genre, with
a CAGR of 9.3 percen t between 2020 and 2025.
North America dominated the worldwide film and video market in 2020,
accounting for 40.5 percent of the total. Then came Western Europe, Asia
Pacific, and the rest of the world. Africa and South America will be the
fastest -growing regions in the film and video market in the future, with
CAGRs of 11.7 percent and 9.9 percent, respectively. Following that, the
Middle East and Asia Pacific are predicted to develop at CAGRs of 9.6%
and 8.4%, respectively.
5.4.1 Newspaper:
Print media has traditionally be en an important source of money for
India's GDP. In 2000, the daily newspaper circulation was over 50 million,
according to official statistics. In 2016, the count went below 40 million,
and infect it dropped even further. Publishers began focused on co nsumer
centric business strategies after studying the print media industry. In order
for the company to be able to generate income. Because of the growing
number of internet users, the publisher's focus has switched to the internet
industry. Since the internet began to capture the attention of consumers,
the print media business has shrunk. As a result, both consumers and
publishers began to pay attention to online content. In the last two years,
the COVID -19 effect has been very strong. The issue had a sign ificant
impact on every aspect of the media, as well as the economy. A number of
49
newspaper advertisers, businesses, event
organisers, and the film industry were all severely
impacted.
5.4.2 DTH:
DTH (Direct to home) service in India was introduced by Dish TV owned by Zee on 2nd
October 2003. India is the largest DTH market in
terms of subscriber. Currently we have 4paid DTH
providers in the country. DTH customers receive
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television via a set top box. (STB). According to a
news portal, the live mint DTH market proposition
remains appealing in the medium to long term. It
is still thriving in the market despite the present
market structure and streaming services.
According to a 2020 study, Airtel has added about
5 lakh users in the DTH television market, making
it the number two player in the DTH space. In
comparison to the rest of the market, India' s linear
television price structure is quite inexpensive. The
pricing structure is set up in such a way that paying
a tiny sum to acquire channel access is a no -
brainer.
5.4.3 OTT:
OTT video (Over -the-Top video), which provides
users with interactive TV and value -added
services via the Internet, is the killer application
for broadband carriers. It had a significant impact
on traditional cable, satellite, and terrestrial
television markets. Traditional broadcasting was
soon engulfed and destabilised by OTT video,
resulting in a 30% drop in subscriptions. Users
like and demand OTT services because the OTT
box intelligently and conveniently realises multi -
screen interactivity (mobile phones push their
displays to the TV via the OTT box), value -added
applications, home network sharing, smart
medical, and smart education, among other things. Furthermore, the flood of knockoff OTT STBs
fuels a steadfast demand for OTT services,
particularly live TV. It has an impact on the OTT
market's structure. The number of competitors,
market concentration, product and service
differentials, and market e ntry barriers are the
primary factors that shape the OTT market.
OTT licensees, content providers, operators,
Internet businesses, smart TV and box
manufacturers, and copycat set -top box
manufacturers are now the main OTT competitors.
One of the most i mportant aspects of the market
structure is product differentiation. Offering
distinctive products, developing consumer
preferences, loyalty, and a competitive advantage
are all ways that businesses attract consumers.
Where OTT products and services di ffer the most
is in content, marketing, user experience, and
value -added services. OTT is an oligopoly market.
It needs a huge market investments and still has a
high barrier to entry. Netflix is a very good
example in streaming industry. Despite being not
the network owner it is yet a very successful
virtual operator. However, licensing, content
control and product differentiation are the main
factors resist the new entrant in the market. (Qin
& Wei, 2014)
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As per times of India, India has 504 million active Internet users in 2020.
Of the total Internet population, 433 million are more than 12 -year old,
while 71 million are in the age of 5 -11 years, who access the Internet on
devices of their family members. Nine out of 10 users in urban India
access Internet at least once a week. In rural India, there is an addition of
30 million new users, who access internet daily compared to March 2019.
The Internet economy contributed up to $537.4 billion to India‘s GDP in
2020, of which a minimum of $270.9 billion was contributed by apps.
Apps were contributing 70% to the mobile traffic.
A World Bank study finds that every 10% increase in broadband
penetration boosts GDP growth by 1.38 % in developing countries. The
internet has affected media economy in multiple ways right from media
piracy to the lower cost of distribution, and media synergy. Which means
any media outlet is the provider of different types of contents of which, the
consumers are accustomed to getting on any other media platform. Almost
every news portal, for example, delivers video content alongside written
content to consumers. The advertising industry has also been affected by
the internet. The brands do not just hunt for large news portals to place
advertisements, but they also place ads on any decent functioning website
with relevant content. For instance, you might place a clothing ad on any
fashion website. The Internet, which connects information and
communication technology, is a major driver of media convergence.
While new Internet media share some characteristics with conventional
media, they also have a few unique features: Aggregation by third parties
with no editorial policy and user -generated material have become
increasingly essential on the content side. On the advertiser side,
numerous Internet media and social networks offer fine -tuned custom izing
and targeting of ads based on particular user characteristics. We see more
time-shifting, multi -homing, and active search options for users. New
participants in the media sector, such as search engines and Internet
service providers, have accompa nied these shifts. Some of these
companies must deal with fresh strategic issues, such as how to convey
search results. Google, a search engine company, plays an essential role in
assisting such advertising organizations in reaching their target consume rs.
(Peitz & Reisinger, 2015).
5.6 INDIAN MARKET
According to an EY report, the revenue generated by the Indian media in
the year 2020 was an estimated value of 19 billion US dollars followed by
United States that generated the value of 25billion US dollars. As per the
IBEF (India Brand Equity Foundat ion) reports, the Indian mobile gaming
industry is assured of estimating US dollar 7billion value by 2025. Also,
the advertising based video on demand segment seems to give a boost to
media economy and is expected to reach US dollar 2.6billion by 2025.
51
Prior to the epidemic, it was discovered that the
film industry's rise in 2016 and 2017 was largely
fueled by Hollywood and regional films released
in India. Each year, India produces between 1500 and 2000 films in more than 20 languages,
roughly twice as many as the United States.
(Stafford, 2006). With an average ticket price of
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attendance, surpassing the United States, China,
and Japan combined (Verma, Jain 2020).
In terms of newspaper sales, India has one of the
world's largest markets, with millions of copies
sold every day. Although the worldwide
newspaper industry is in decline, the Indian
newspaper sector is nevertheless thriving. Despite
the fact that the newspaper industry is facing
numerous c hallenges as a result of the country's
socioeconomic status, it is nevertheless able to
compete in the market. It could be due to its
reputation as a reliable source of information, as
well as its ability to be innovative and
knowledgeable. The newspape r industry knows
how to market and sell itself better than anyone
else. In comparison to many other countries, such
as the United States and Japan, India still has a
thriving newspaper industry, despite losing its
dominance in media industry. (Nidhi Sh arma,
2015).
As per Times of India, the newspaper industry in
India generated over Rs.295 billion income in
fiscal year 2020, while the magazine industry
brought in almost Rs.10 billion. In fiscal year
2020, the print sector in the United States droppe d
by more than 8% compared to the previous fiscal
year. The paper asserts that Indian publishing is a
crucial enabler for education, continuous learning,
and recreation, as well as a promoter of Indian
culture, values, and excellence, and was prepared
in partnership with the Association of Publishers
in India (API). It outnumbers print media (newspapers and magazines), digital media (social
media, apps, online streaming, music, and games),
filmed entertainment (movies), and radio and
music as one of the country's largest media -related
industries.
By allowing the continuous production of
knowledge in regional languages, the publishing
sector supports Indian culture, values, and
greatness. It also takes advantage of the continued
popularity of digita l platforms like e -books in
regional languages to reach out to a wide range of
audiences. It is needless to say that the publishing
industry has a promising future in India.
5.7 MEDIA CONVERGENCE
Media convergence means an openness to a
different media contents on the same platform.
Due to technological development mobile phones
have made compatible to television and
newspapers compatible to mobile phones. Digital
convergence made the news pocke t friendly for the
news readers. The convergence between
telecommunication and broadcast media has been
possible because of the interactive digital
broadcast services. In a generic sense, media
convergence is a fusion of different media outlets.
As per a news portal exchange4media, the media
industry was dominated by 50 big corporations in
1983. The number had dropped
Changing Market Structure And Boundaries, Digital Convergence
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52
Media Economics to 29 by 1923. In the early 1990s, the number increased to 23, and by the late 1990s,
only ten major media companies dominated the market. AOL Time munotes.in
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Warner, Walt Disney, News Corporation, Viacom, Vivendi, Sony, AT&T,
Liberty Media, and General Electric a re just a few examples of large
corporations. As internet media has grown in popularity, traditional media
outlets have been pushed to reinvent themselves in order to stay
competitive. The drive to reinvent oneself resulted in media mergers and
acquisi tions. However, there are several other factors that have aided
mergers and acquisitions. For example, cash -rich private equity investors
are very interested in the consistent cash flow generated by media
companies. However, the twentieth century saw th e ultimate split among
all the corporations that combined with other companies, such as Viacom.
They sold their equivalents since they had the most shares. The M&A
activity in media firms is becoming increasingly muddled, which is a huge
transformation in the media and entertainment industry. Since the last few
years, the media and entertainment business has been quiet. Zee, on the
other hand, is teaming up with Sony now. This merger, according to media
reports, will be the most successful of all. Ze e is a fictional content
provider with a strong regional presence. Sony, on the other hand, is the
market leader in non -fictional entertainment. Zee -Sony is thought to be
worth $2 billion if they combine their broadcast market share of 25%. The
M&E ind ustry is undergoing three major changes, according to Karan
Taurani, Elara Capital SVP - Research Analyst. This includes: 1) a digital
shift, 2) ad growth convergence, and 3) broadcast tariff control. "To keep
the growth rate and have a say in the marke t, consolidation is essential." If
the market remains fragmented, even if there are only 5 or 6 competitors,
and growth rates are converging, everyone loses since everyone will wind
up paying more for content. Consolidation is required because it is
possible to obtain the best of the market, resulting in a situation in which
two or three larger firms control a significant portion of the market.
Media convergence is the distribution of media items across many media
platforms. Adele's music album, for example, may be accessed on a PC or
listened to on an iPod or iPhone. Media convergence blurs the lines
between various forms of media, resulting in the birth of new media
products and services. It has also altered the media industry's commercial
struc ture and culture. It has been noticed that media convergence has
influenced not just the market but also the behaviour of consumers. The
consumer's perception of media products and content has shifted. The
border between economy and culture has also dis solved as a result of the
convergence. Production and consumption, as well as a passive and
engaged audience, are all factors to consider. The best example of this is
social media news material. ( Josko Lozic, 2019)
The aim and content of news remain t he same, but it is now delivered over
multiple channels at the same time to meet the needs of the audience. As
digitalization affects an increasing number of market competitors,
convergence has blurred the lines between producer and customer. It
inspir es traditional media to reinvent themselves, with immediate
implications for manufacturing processes. The media industry and its
market structure have undergone a fundamental shift as a result of
53
convergence. In today's media industry,
monopolistic competition is prevalent. However,
the market remains dominated by a small number
of media owners. (George Ghiea, 2022). 5.8 QUESTIONS
1) Why media market structure is called munotes.in
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Oligopoly?
2) Why do modern marketing especially in terms
of media contents needs to be creative?
3) Explain DTH
4) Explain OTT media market structure
5) Explain how Indian media market has changed
today? 6) How the Internet media has affected the
economy?
7) Impact of COVID -19 on Media Market and
economy?
8) How digitization has coined the term media
convergence and its impact on Indian Economy?
5.9 REFERENCES
∙
http://www.scienpress.com/Upload/AMAE%2fVol
%204_5_3.pdf
∙ https://eh.net/encyclopedia/the -economic -
history -of-the international -film-industry/ ∙
https://www.businesswire.com/news/home/202109
10005333/en/Glob al-Film -and-Video -Services -
Market -Report -2021 ---Opportunities and -
Strategies -to-2030 ---ResearchAndMarkets. com
∙ https://www.mordorintelligence.com/industry -
reports/newspaper industry .
∙
https://timesofindia.indiatimes.com/blogs/economi
c-update/the economic -impact -of-internet -in-india/
∙
https://open.lib.umn.edu/mediaandculture/chapter/
13-3-the-internets effects -on-media -economies/
∙
https://www.sciencedirect.com/science/article/abs/
pii/B97804446272 1600010X
∙
https://www.researchgate.net/publication/3420293
48_Emergence_of_
Indian_Film_I ndustry_in_the_International_Marke
ts_Facilitators_and _Impeders
∙ https://www.jstor.org/stable/4414083
Changing Market Structure And Boundaries, Digital Convergence
munotes.in
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54
Media Economics ∙ https://timesofindia.indiatimes.com/blogs/economic -update/the economic -
impact -of-internet -in-india/ munotes.in
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∙ https://timesofindia.indiatimes.com/life -style/books/features/indian
publishing -to-be-rs-800-bn-industry -by-2024 -ey
parthenon/articleshow/84434824.cms
∙ https://link.springer.com/chapter/10.1057/9781137005908_4
∙ https://www.exchange4media.com/media -tv-news/2021 -the-year
mergers -acquisitions -restructured -indias -me-sector -117215.html
∙ https://www.researchgate.net/publication/342029348_Emergence_of_
Indian_Film_Industry_in_the_International_Markets_Facilitators_an
d
_Impeders
∙ https://www.jstor.org/stable/4414083
∙ https://www.ibef.org/industry/media -entertainment -india.aspx
∙ https://www.google.co.in/books/edition/Digital_Convergence_in_Con
temporary_News/mfFLEAAAQBAJ?hl=en&gbpv=1&dq=digital+co
n
vergence+in+media&printsec=frontcover
∙ https://www.researchgate.net/publication/342004555_CONVERGEN
CE_OF_MEDIA_INDUSTRY_CHANGING_THE_PARADIGM_O
F_MEDIA_PRODUCTION_AND_CONTENT_DISTRIBUTION
∙ https://www.google.co.in/books/edition/Economics_of_Scale/amiDD
wAAQBAJ?hl=en&gbpv=1&dq=what+is+economies+of+scale&prin
t
sec=frontcover
*****
55 munotes.in
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6
TECHNOLOGICAL CHANGE AND
INNOVATION
Unit Structure
6.1 Introduction
6.2 Framework for adoption of new technology
6.3 Dimension of the organization towards innovation.
6.4 New media adoption by media firm
6.1 INTRODUCTION
The advancement of technology and innovation in media has a remarkable
impact on the lives of people, society, and the economy. New media
technologies like the internet gradually started becoming the mainstream
media at the beginning of the 21st century. The spreading of
communication technology has shaped the lives of peo ple and the future
of the media industry. The arrival of print media to the new interactive
media industry has witnessed growth and commercialization. Although all
media firms were aware of the importance of innovation, many firms were
skeptical to be pioneers of innovation because of risk -averse beliefs.
Those companies who fail to adopt new technology also fail to reap the
benefit. On the other hand, companies who adopt new technology were
also not successful in getting the benefit. Eg. Sony, a man ufacturer of
electronic products, changed the way we listen to music with the invention
of the Walkman Walkman was a must -have gadget for every teen. But
when MP3 players were introduced to the market, the sales of the
Walkman started to drop. The iconic Walkman was killed by the MP3
players, which were later killed by smartphones. Sony didn‘t adapt to
technological innovations such as digitalization, the shift towards
software, and the growth of illegally downloadabl e music online. Sony
had the technology to launch a product even better than the iPod, but it
never happened. The company was too afraid to test out something new,
thinking it would threaten their compatibilities on the market. The advent
of the intern et and digitization has generated revenue or lowered the cost;
it can also change the current market standards.
6.2 FRAMEWORK FOR ADOPTION OF NEW
TECHNOLOGY.
Creative destruction:
The essential driver of development in an economy is the process of
creative destruction achieved by businessmen who continuously innovate
products, production processes, which create more utility to consumers
and accelerate economic growth. For success and economic development,
56
Media Economics it has become crucial to commercializing business. Innovation also has an impact on
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often changes an industry‘s existing value chain, forcing firms to attempt
to create more value using the traditional system or to learn how to create
value by incorporating the new technology into the existing system (Hitt,
Ireland, Camp, & Sexton, 2001). The monetary worth and degree of
progress, achieved by the presentation of new media, are obvious as
should be visible from how digital TV changed the arrangement and
content of TV programming and how the Web is upsetting the circulation
of music items.
Business strategy:
One of the essential requirement for acceptance and implementation of
new technology is how the management of an organization react to
innovation. Management attitudes beliefs values attitudes towards
innovation are essential in any organization irrespective of its size.
Adoption of new technology would help media firms to innovate their
product or service; explore new market avenues, cater to the requirement
of a new line of customers. Barringer and Bluedorn (1999) proposed three
specific enablers of firm -level entrepreneurial behavior: opportunity
recognition, organizational flexibility, and the ability to measure,
encourage, and reward innovative and risk -taking behavior.
6.3. DIMENSION OF THE ORGANIZATION TOWARDS
INNOVATION
A Series of dimensions can be used to assess the approach of the
organization towards innovation:
1. Strategic approach: the organization would be able to exploit
opportunities in their best capacity only if the resources are optimally
used.
2. Willingness to exploit opportunity: if the firm has an action oriented
approach then it will immediately encash upcoming
opportunities where the firm which has an analysis -oriented approach
will be more cautious before exploiting an opportunity.
3. Utilising resources responsibly: certain firm believes in utilizing all
available resources in full capacity for exploiting opportunities while
certain companies believe in using resources effectively and
preserving some for the future.
4. Management structure and reward philosophy: nowadays modern
media organization believes in having a flattened management
structure so that quick decisions can be made, employees can be made
responsible for their job, and can be rewarded based on their
performance. Whereas traditional organization still believes in
following vertical hierarchy which slows down the decision -making
process and creates more dependency on seniors for decision.
57
5. Growth inclination : innovative firm focuses
on fast development and acknowledges risk
associated with growth opportunities whereas a
firm having a conservative approach prefers safe, and consistent development.
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opportunity while conservative firm limits their
progression of thoughts and fails to identify an
opportunity.
Management, firm size, and ambiguous
environment :
Management perspectives are important to all
media firms irrespective of their size. In this
competitive environment, large organizati ons
focus more on their long -term sustainability but
fail to explore new market opportunities whereas
many small firms that can be successful often
exceed in prospecting new markets and tapping
new opportunities. The ambiguous environment
has a positiv e effect on innovation and
technology. Introduction to the internet and
digitization has bought transformation in media
tools.
Network relationship:
media firms nowadays are searching for
developing network relations with different firms
both horizontally and vertically. Network
relationships help organizations to exploit new
technology, explore new opportunities, share
resources, and share market risk. Smaller firms
having innovative services or products can
overcome va rious business challenges like access
to market, distribution system, expertise,
overcoming entry barriers, etc.
Acceptance of new media technology: The new media age is influenced by high -tech
technology, changing the social environment for
users of m edia, the role of social media in
stimulating acceptance of new media. Pricing
factor. Media adoption by consumers depends on
the role of social media influencers, market
competition, pricing factors, and product
uniqueness.
Media product distinctivene ss:
The organizational decision majorly depends
upon the availability of resources in a particular
media industry. Many times strategic networks
are formed between media and non -media
businesses to make their product/service unique
from competitors. Eg . A Media firm having a core
product may tie -up with the non -media
organization which will help them out in
distribution, promotion, packing processing of
content, etc. thus adding value to the overall
product.
4. New media adoption by media firm
Firm characteristics:
As adoption of new media is influenced by
personal factors of consumers same way even
organizational traits also have an impact on new
media
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Media Economics adoption. Two sets of media firm characteristics are proposed: 1 firm approach
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Firm approach towards media:
Miles and Snow developed a plan for exhibiting organizational attitude
towards new product development, structure, and the process by assuming
organizations with different organizational beliefs have a different
organizational strategic choice.
Miles a nd Snow’s taxonomy classify organization into four groups:
1. Prospectors are the ones who are always willing to take advantage of
new products and market opportunities.
2. Protector focuses on attracting market segments to intensify a stable set
of products/services.
3. Reviewer that has an intervening position between prospector and
protector carefully observing and supporting prospector and
simultaneously examining and protecting a stable set of product and
services.
4. Catalysts that do not have a persistent product or market orientation but
react to competition with a short -term focus.
Management perspective:
Another factor that impacts the acceptance of new technology is the
management perspective. The management needs to have the willingness,
sovereignty uniqueness. Risk -taking ability. The risk -taking ability might
be a better measurement of the managerial ability of a media firm because
new media technology adoption ofte n takes the form of investments that
require a larger scale and scope and greater coordination. Organizations‘
past experience and changing role of new media technology affect the
process of adoption of new media.
Competitive Repertoires:
Competitive repertoires mean strategies framed by the media firm to
attract, cater to, and retain customers in a particular market segment.
(Miller & Chen, 1996). With reference to media product type of market in
which Media Company operates has an impa ct on repertoires. A Majority
of media companies operate in an oligopoly market which means
competitive repertories are restricted to a very smaller number.
Current new media holding and past performance:
The media held by organizations currently also provide a hint about the
likelihood of future adoption of the decision -making process.
Organizations‘ prior experience also provide insight about resources
available with the organization for commercializin g new media
technology
59
Firm Size:
In a world of innovation, size can be an issue. A
large firm can are generally busy meeting the
current need of the market thus fails in resources
allocation to the new technology. As against small firms easily adopt the new technology with an
attacker approach and change their marketing
strategy. These firms are also successful in
capturing the market over existing big
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initiated a small firm like America online was
successful in promoting such services rather than
established media firms.
Firm age:
Like the size of a media firm, even the age of the
firm has an impact on technology adoption.
Generally, as older the firm is more will be
market experience and strong resources. But in
certain cases, firms fail to identify opportunities,
change business strategies, and may not be
willing to take risks. With reference to media
products Businesses, especially businesses with
established customer relationships with branded
content Loyalty may be in a better position to
assess customer needs and harness the market
potential of new media technologies, eithe r alone
or through strategic networks.
6.5 QUESTIONS 1. What plan media firm needs to do to adopt new
technology.
2. On which elements the media firm has to focus
on while adopting innovation.
3. What aspects media firm has to consider while
adopting new media. *****
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6A
CREATIVE DESTRUCTION
Unit Structure
6A.1 Introduction
6A.2 Role of Creative Destruction In Free Enterprises
6A.3 Argument For and Against Creative Destruction
6A.4 Importance of Creative Destruction to Capitalism
6A.5 Questions
6A.1INTRODUCTION
Just imagine how your pandemic would be without OTT platforms. On the
one hand, The development of the OTT platform has entertained many
youths and on the other hand, it has also helped many producers to release
their films or web series on various OTT channels like Amazon prime,
Disney Hotstar, Netflix, etc. earlier people use to rent out DVD / CD to
watch their favourite movie which is now replaced by OTT platform you
can now watch any movie of any times on OTT platform. The existence of
the OTT pl atform is an example of creative destruction. The term
―creative destruction‖ was given by famed economist Joseph Schumpeter
in the 1940s. In defining the term, Schumpeter stated the ―process of
industrial mutation that incessantly revolutionizes the ec onomic structure
from within, incessantly destroying the old one, incessantly creating a new
one.‖ Creative destruction is a process through which new creativity
replaces old one. Economic progress is possible only by adopting new
technology. An organi zation that always strive to be ahead of their rivals
tend to respond positively to the adoption of new technology. Creative
destruction helps organizations in dominating the market by providing
better products/services to consumers, reducing cost, efficiently utilizing
resources, etc.
6A.2 ROLE OF CREATIVE DESTRUCTION IN FREE
ENTERPRISES.
Free market economists consider creative destruction as an unavoidable
and crucial process of economic p rosperity and protest the government‘s
aim of controlling the process of decline.
Free market economists argued that if the organization is losing its market
share then the business needs to be shut down so that resources can be
diverted to some productive firm.
The volatile nature of the market stimulates organizations to keep on
innovating their products/services and keep costs low.
61
Although change sometimes results in loss of employment simultaneously Creative Destruction it also
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Growth in the service industry is a sign of a growing economy thus
resulting in creating more employment opportunities.
The music industry has undergone a tremendous technological change
which resulted in rising and fall of several companies. For Eg, cassettes
were replaced by CDs which were later on replaced by digital music tools
like Spotify, etc
3. The drawback for creative destruction:
Structural unemployment : structural unemployment takes place because
of changes in industry standards, employees may lack the skills for getting
better job opportunities. Structural unemployment may be permanent .
Technological advancement might be one of the reasons for structural
unemployment.
∙ The firm industry may provide external benefits which impact social
efficiency. For example, in the 1960s, the Beeching report advocated
in UK railways were replaced by car considering car to be a more
efficient mode of transport and hence investment was diverted on the
construction of roads instead of railways however due to increase in
congestion, pollution, later on, made the government rethink on a
decision of closing railway.
Regional unemployment: In a changing economy, regional immobility can
make the "phrase of destruction" last longer. Large closures and the loss of
many jobs can be difficult for the community to deal with. The economy
can create new jobs, but not in areas with high unemployment. This can
lead to long -term low growth and high local unemployment.
Not a Pareto improvement: Pareto improvement means no individual is
adversely affected by economic action. Creative destruction might create
better opportunities for some whereas it may adversely affect some
people.
6A.3 THE ARGUMENT FOR CREATIVE
DESTRUCTION
Economic progress is possible only by adopting new technology. An
organization that always strive to be ahead of their rivals tend to respond
positively to the adoption of new technology. Creative destruction helps
organizations in dominating the market by providing better
products/services to consumers, reducing cost, efficiently utilizing
resources, etc.
The GDP of the nation will also start rising if businesses can successfully
adopt new technology by replacing old ones.
62
Media Economics Creative destruction helps in saving crucial resources like time and money thus
resulting in improved efficiency of employees, an increase in wealth and
standard of living
Organizations can make the best use of their resources by producing goods
or ser vices at a lower cost and enjoying a higher profit. munotes.in
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Organizations can dominate the market if the process of creative
destruction is handled properly by management. Empowering employees
by providing them proper training and insights into the new system c an
save the jobs of many employees thus maintaining the goodwill of the
company.
6A.4 IMPORTANCE OF CREATIVE DESTRUCTION TO
CAPITALISM
1. Rather than assessing the effectiveness of capitalism by where the
business cycle is at a given point in time, we look at the long -term
consequences of capitalism and judge its effectiveness in terms of
economic growth and improved living standards. This is because the
volatility of the capitalist business cycle is both a sign and a
mechanism for the creative destruction process to work.
2. While most policy analysis focuses on redistribution schemes across
the existing income distribution e. g. taking money from Amazon
CEO Jeff Bezos and giving it to a McDonald`s worker, Schumpeter`s
point about the centrality of creative destruction suggests that our
focus should instead be on whether the income distr ibution itself
changes, whether a new distribution can be created, an old one
destroyed. Can a poorer McDonald`s worker rise to become the CEO
of Amazon, as was the real -life experience of Jeff Bezos?
3. The biggest threat faced by many companies is not from established
competitors in their space, but from smaller, more agile newcomers
who have disruptive technologies that threaten market power. There
are many examples of existing companies and technologies facing
existential threats from the endless storm of creative destruction.
Amazon and Wal -Mart, Netflix and Blockbuster, Uber and taxi.
4. For Schumpeter, there are five main types of innovations that can
initiate a creative destruction process. Introducing new products or
product qualities, introducing new production methods, developing
new markets, discovering new markets. Sources and industry
restructuring, such as mergers
5. Another major cause of creative destruction is international trade.
Schumpeter's five sources of innovation do not prevent international
trade. Introducing foreign products, technologies, or methods of an
industrial organization into the domestic market has the same effect as
domestic innovation, with the only difference being that the source of
competition is now foreign .
63
6. Creative Destruction Innovation comes from two -player Start -ups are mainly entrepreneurs of an
emerging technology company headquartered in the garage.
While existing players are primarily established companies, perhaps
with large, well -equipped R & D labs for engaging in capital
intensive research. Established companies are complacent, stick to
past processes, and are too afraid to take great risks. In contrast,
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quo, and the innovation will revolve around existing companies that
are sluggish until the swaying dinosaurs collapse under their own
weight.
7. Access to credits closes the resource gap between existing and
emerging players, allowing emerging players to bring innovation to
the market. Given the important role that both new entrepreneurs and
existing businesses play in creating innovation, policymakers provide
support to government partnerships, grants, or existing entrepreneurs
and R & D labs. We have endeavoured to support innovation through
other schemes designed to.
8. The socio -political consequences of economic change, especially
unemployment. A clear and common example is when a small town
loses its main employer due to disruption, whether due to
international trade or innovation -induced changes in product space.
Creative destruction leads to unemployment and despair. That despair
loosens community ties as the old man stays behind while the young
man seeks a better outlook elsewhere and hollows out the city. In their
newly hired cities, these urban migrants o ften seek jobs at low wages.
City residents lament industrial activity, and local politics is moving
in an ugly direction.
9. There is the direct cultural impact of innovation itself, a change that has
not been driven into the realm of economics. Perhaps the best
example is the introduction of the printing press in Europe by
Johannes Gutenberg. The press not only spawned a new professional
class printer. The printing press example is similar of today's social
media. Public spaces have collapsed and the final social and political
impact is still complete as we are classified as information silos and
each of us is hiding in our own personalized flow of information. Has
not been determined.
Thus, Policymaker s have been working on ways to leverage the creative
destruction process in a way that maximizes its benefits while minimizing
the impact on those expelled by innovation, with a variety of effects. In
order to realize the benefits of creation, the old m ust be destroyed.
Otherwise, there is no place for innovation to drive the outcome of
capitalism.
Example:
Effect of Creative destruction in the Covid era on the entertainment
industry.
64
Media Economics Should films be released directly on OTT (Over -the-top) platforms? This argument
is not new. With plethora of pocket -friendly streaming services leveraging
the 4G revolution in India, this shift has often been talked of as inevitable.
With large invest ments at stake, and there being no sign of cinema halls
opening any time soon, Covid -19 has fast -tracked the process as
producers are scampering to release directly on OTT, bypassing theatrical
release, and the decision has naturally left the exhibition sector fuming. munotes.in
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In an ideal situation, both must co -exist and an invention of something
digital must not eliminate traditional. Till the time we come up with a
proper definition of ‘ideal’ for the entertainment industry, producers
would not shy away fr om releasing their content on OTT platforms.
Source: https://timesofindia.indiatimes.com/blogs/voices/creative
destruction -in-the-covid -era/
6A.5 QUESTIONS
1. What is creative destruction?
2. Role of creative destruction in free enterprises.
3. What are its pros and cons?
4. Relevance of creative destruction on capitalism
*****
65
6B
MULTI -PLATFORM
Unit Structure
6B.1 Introduction
6B.2 Public Good munotes.in
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6B.3 Economies of Scale
6B.4 Value Chain
6B.5 Question
6B.6 References
6B.1 INTRODUCTION
In the 21st century, media companies‘ traditional media continue to evolve
into multi -platform media enterprises. For many years content was
delivered via a single platform like newspaper, radio, etc. Now,
technology -driven media com pany shares their content through multiple
platforms including traditional as well as new media platform. Eg.
Programs broadcasted to television sets are also broadcasted on social
media like Facebook, YouTube; additional content is shared on OTT
platforms (Bigboss Uncut on voot), mobile phones (tata play). Media
organization has adopted a 360 -degree approach to distributing their
content on multiple platforms instead of limiting it to a single platform.
But while adopting this approach media organiz ation also has to check the
availability of media platform, the usefulness of the media platform.
Feasibility of the platform adopted to endorse program, cost effectiveness.
Analysing multiplatform organization in the economic
context. 6B.2 PUBLIC GOOD
Public goods are such products that are not used remarkably in the
consumption process and the cost incurred for the additional user is also
very negligible eg additional television viewers would impose hardly any
cost to the broadcaster. Certain econo mists believe that media goods are
non-rival eg. Many people watch television or listen to the radio
simultaneously without impacting its quality. While some argued that
media products are non – executable eg. Netflix, amazon are examples of
non-execut able goods because people who pay subscription charges would
be able to watch programs running on these platforms.
Business model:
The business model is the strategy adopted by the media company t
generate revenue. There are three types of model advertising, subscription,
pay per use.
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Media Economics 1. Advertising model – media companies generate revenue from advertisers eg
Facebook, YouTube, etc.
2. Subscription model – generate revenue by charging subscription fees to
users eg Disney Hotstar.
3. Pay per use: unlimited service is provided to the user but is charged
based on service used by them eg. Subscribing for sports channel only
during the cricket world cup.
Complementary and substitute:
When the increase in the price of one product increases demand for other
products, the product substitutes each other eg. Movie show is priced high munotes.in
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at cinpolis and low at inox then inox will substitute cinepolis.
Complementary goods are good when consum ed together enriches
consumers‘ experience. When rising in the price of one product decreases
in demand for another product then it is a complementary product. Eg. a
rise in price for the internet may affect the demand for OTT platforms.
6B.3 ECONOMIES OF SCALE:
As the output increases the marginal cost of production decreases. This is
because the cost of production is distributed by increasing production.
There is a negative relationship between output produced and fixed cost of
production. The media industry experiences economies of scale because of
its public goods characteristics. Eg. The average cost of supplying a
product reduces as the number of viewers or readers increases.
6B.4 VALUE CHAIN
The range of activities that a media undertake right from pr oduction to its
distribution to the final consumer. It includes designing, creating,
marketing, distributing, and after -sales service to the ultimate customer.
This can be conducted by a single firm or if the size of the firm is small
then multiple fir ms. Link is created for adding value to a product till it
reaches the ultimate customer.
6B.5 VALUE CHAIN
Economies of scope:
When there is an increase in the variety of product similar products the
cost of production decreases. When there are certain shared costs between
two or more products then it becomes more cost -effective to sell. Many
organizations opt for mergers and a cquisitions as it reflects the widespread
availability of multiple distribution resources.
6B.5 QUESTION
1. Analysis of multiplatform media.
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Multi -Platform 6B.6 REFERENCES
∙ Alan b. Albarran Handbook of Media Management and Economics,
Routledge, First published 2010 Taylor & Francis Group, a pg. 69 to
78pg 86 – 97.
∙ Alan B. Albarran; co -editors Sylvia M. Chan -Olmsted, Michael O. Wirth,
Handbook of media management and economics, lawrence
erlbaum associates, publishers, pg. pg251 to 263.
∙ https://www.caluniv.ac.in/global -mdia -journal/COMMENTARY
JUNE -2014/C_3.pdf
∙ https://econlife.com/2019/08/the -impact -of-the-netflix -effect/ munotes.in
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∙ https://www.investopedia.com/terms/c/creativedestruction.asp#:~:text
=Schumpeter%20characterized%20creative%20destruction%20as,inc
essantly%20creating%20a%20new%20one.%22
∙ https://journals.sagepub.com/doi/full/10.1177/1329878X18798693
∙ https://knowledge.insead.edu/entrepreneurship -innovation/creative
destruction -in-the-digital -media -age-1826
∙ https://www.caluniv.ac.in/global -mdia -journal/COMMENTARY
JUNE -2014/C_3.pdf
*****
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7
DIGITIZATION AND MEDIA
Unit Structure
7.1 Digitization and Media
7.2 Response of Media to Digitisation
7.3 Managerial Theories of Media Firm
7.4 M ARRIS GROWTH MAXIMIZATION MODEL
7.5 W ILLIAMSON ‘S MANAGERIAL DISCRETIONARY THEORY 7.6
Vertical Integration munotes.in
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7.6.1 Introduction
7.6.2 Types of Vertical Integration
7.6.3 Advantages of Vertical Integration
7.6.4 Disadvantages of Vertical Expansion
7.7 Horizontal Integration
7.7.1 Types of Horizontal Integration
7.7.2 Advantages of Horizontal Integration
7.7.3 Disadvantages of Horizontal Integration
7.8 Transnational Expansion
7.8.1 Advantages of Transnational Expansion
7.8.2 Disadvantages of Transnational Expansion
7.9 Questions
7.10 Reference
7.1 DIGITIZATION AND MEDIA
The process of converting information into a digital format is called
digitization. Here, the information is organized into units called bits that
can be individually addressed. This binary data is processed by computing
power computers and other devices . Digitization of information makes it
easy to store, access and share across different platforms around the world.
All industries have been positively impacted by the use of digitalization,
and the entertainment and media industries are no exception. The digital
revolution has swept the M & E industry, breaking new barriers and
creating greater competition. The government has played an active role in
this Supporting the media and entertainment industry, especially through
various policie s aimed at this Increased digitization, including the
development of Digital communication infrastructure
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Digitization And Media 7.2 RESPONSE OF MEDIA TO DIGITISATION Television:
The technology utilised in televisions has vastly advanced. Users now
have a wide range of alternatives when it comes to receiving television
signals, thanks to the arrival of digital transmission. It also allows you to
play or stream videos in various resolutions. When it comes to visual
quality, digital signals give a higher level of efficiency. In fact, only
digital data may be used to display images on high -definition screens.
Print media:
News was literally hot off the presses at one point – real newspapers were
everywhere, mass -produced and circulated across cities for anybody to
pick up, flip through, and read every line. News can now be access simply
at a single click. Circulation is also done via email or through mobile app.
Now news read er do not have to wait till next day to read the news they
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Photographs:
The time has passed long ago when people use to wait to get print
photographs. The digitization of photography has better preservation, can
be shared with many people, and can be recaptured if the photograph did
not meet the quality. Even digitization a llows scanning of old photos and
storing them for a longer period of time and cherishing the memories.
Music industry:
The music industry has seen significant transformations as a result of
digitalization. In terms of supply chain management, digitizat ion
eliminated raw materials such as CDs and LPs and shifted traditional
distribution methods to the internet, resulting in significant cost
reductions. By providing easy access to the market through digital
audition systems, it boosted the number of s uppliers, songwriters, and
artists..
7.3 MANAGERIAL THEORIES OF MEDIA FIRM
Managerial theories of the firm place emphasis on various incentive
mechanisms in explaining the behaviour of managers and the implications
of this conduct for their companies and the wider economy.
According to traditional theories, the firm is control led by its owners and
thus wishes to maximize short -run profits. The more contemporary
managerial theories of the firm examine the possibility that the firm is
controlled not by its owners, but by its managers, and therefore does not
aim to maximize pr ofits. Although profit plays an important role in these
theories as well, it is no longer seen as the sole or dominating goal of the
firm. The other possible aims might be sales revenue maximization or
growth.
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Media Economics Following are three managerial theories of the media firm: 1.
Baumol’s Theory of Sales Revenue Maximization:
According to Baumol, 'The sales maximization goal says that managers of
firms seek to maximise their sales revenue subject to the constraint of
earning a satisfactory profit. "
As per the above definition after a media firm, once profits have reached a
level that the shareholders consider sufficient, the managers' efforts are
concentrated toward maximizing revenue by encouraging sales rather than
profit maximization. It's impo rtant to remember that companies don't
completely disregard profit. They do want to make a profit on a broad
scale. But, once they have reached an acceptable level of profit, their focus
switches to sales maximization rather than profit maximization.
Following arguments are given in favor of maximization of sales goal:
a. More Practical: The goal of increasing sales is a more realistic goal. In
fact, media firm place a higher priority on increasing sales than on
increasing profits. This is because a company's success is typically
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advanced, Baumoul's thesis has a tremendous benefit — it raises the
other models in the direction of realism and believability while still
allowing a rather comprehensive theoretical analysis,' according to
Ferguson and Krupps.
b. More realistic: Baumol's revenue maximization theory is more
practical. This is because the goal of increasing income (Sales) leads
to increased output, which leads to a decrease in price. As a result, the
welfare of consumers is fostered. They also agree with the firms'
purpose.
c. Maximum Sales: A company's strongest position in the market is
symbolised by its maximum sales. A company's sales will be high
only if consumers like its products, the company has more
competitive power, and it has been expanding. All of these
characteristics are indicative of the company's success.
d. More benefit to manager: it is in the management' best interests for
the company to seek for maximum sales. As a result, their market
credibility improves. Maximum sales are a measure of the m anagers'
abilities. It has a positive impact on their pay. The company is in a
position to pay its staff more money. As a result, employer -employee
relationships improve. It is the managers' ongoing effort to maximise
the firm's sales after achieving a certain level of profit.
7.4 MARRIS GROWTH MAXIMIZATION MODEL
Owners (shareholders) seek earnings and market share, whereas managers
seek a higher compensation, job stability, and growth, according to marris.
These two objectives can be met by maximising the firm's balanced
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growth (g), which is determined by the growth rate of demand for the Digitization And Media firms
products (gd) as well as the growth rate of capital supply to the firm
(gc). As a result, the media firm's growth rate is balanced when demand
for its product and capital supply develop at the same rate.
The firms face two constraints in the objective of maximisation of
balanced growth, which are explained below:
a. Managerial challenges:
Among the managerial challenges, Marris emphasised the necessity of
human resources in accomplishing media firms goals. Manager of media
houses' talents, expertise, efficiency, and sincerity, are critical to the
firm's progress. The lack of managerial skill sets in the requisite size
produces growth constraints: media firms with high levels of expansion
may face a skill ceiling among existing staff. New hires may be employed
to expand the managerial pool with needed abilities; however, new hires
lack the experience to make quick choices, which could be another
constraint.
b. Financial Constraint:
Prudent financial policy necessitates the optimal maintenance of the three munotes.in
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key financial ratios.
i. Current Ratio: The ratio of liquid assets to total assets is known as the
liquidity ratio. Insolvency is more likely when there is a lack of
liquidity (risk=+ve).
ii. Leverage/Debt, often known as the Debt -Equity Ratio, is the debt -to total -
assets ratio. A high debt -to-equity ratio puts the company at risk
of going bankrupt. (risk=+ve)
iii. Profit retention ratio: A high profit retention ratio adds to the reserves,
which contributes to capital growth. (threat= -ve)
Combining all of the above into a single parameter will result in the firm's
financial limitation.
Policy variables in Marris’s balanced growth model are as follows:
i. The media firm has the liberty to choose its financial policy, as it
subjectively determines the three financial ratios, liquidity ratio,
leverage/debt ratio and retention ratio.
ii. The media might decide on its diversification rate by either growing its
product range or just changing the style of its present product range.
Alternatively, it can implement both policies at the same time.
iii. The firm's price is not a policy variable. It's a variable. The price is
determined by the market's oligopolistic structure. Costs of production
are also assumed.
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Media Economics iv. The media firm has complete control over the amount of advertising and R&D it
spends. Given the price and production costs, an increase
in advertising and R&D will result in a reduced profit margin, and
vice versa.
7.5 WILLIAMSON’S MANAGERIAL DISCRETIONARY
THEORY
Berle -Means -Galbralth and Williamson each created their own theory of
Managerial Utility Maximization. Managerial Discretion Theory is
another name for it. The theory is founded on the idea that the firm's
shareholders and managers are two distinct grou ps. The shareholders or
owners demand substantial dividends and are hence interested. Managers,
on the other hand, have objectives other than profit maximisation when it
comes to maximising profits. Once the managers have reached a profit
level that al lows them to pay reasonable dividends to shareholders while
yet allowing the company to grow. They have the freedom to enhance
their own remuneration, as well as the number of their personnel and the
amount they spend on them. According to Williamson ―t he extent that
capital market pressure and product market rivalry are imperfect, the
manager, consequently, has discretion to pursue purposes other than
profits," "The lack of corporate democracy leaves owners or shareholders
with little or no capacity to modify corporation policy," Berle and Means munotes.in
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added.
"Managerial Utility function may be expressed as follows:
U = f (S, M. ID)
It will be read as : Managerial utility is a function (f) of additional
expenditure on staff, managerial emoluments and discretionary
investment.
(Here, U = managerial utility; S = additional expenditure on staff; M =
managerial emoluments and ID = dis cretionary investment).
The media manager is expected to follow policies which maximise the
following components of his utility function.
1. Expansion of staff:
The manager wants to improve the quality and quantity of the employees
that report to him. This will result in a raise in the staff's salary. Greater
employees are prized since they result in a higher income, more prestige,
and more security for the boss.
2. Emoluments for managers have risen:
Managerial utility is also influenced by remuneration. It contains benefits
such as a stipend for entertainment, a fancy office, a staff car, and a
company phone etc. This type of expenditure represents the manager's
prestige, power, and status to a con siderable extent.
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3. Digitization And Media Investing Discretionary Power:
Managerial utility is also dependent on the manager's discretion to invest
in areas other than those required for normal operations. The manager has
the financial means to invest in cutting -edge technologies and modern
plants. These investments may or may not be cost -effective. These
investments could be made for the manager's own gratification.
Shareholders and management are two distinct groups in a company,
according to the notion. The firm strives for the highest possible return on
investment and profit, whereas managers strive for the highest possible
profit in their satisfying function.
Finally, Williamson's managerial discretion theory demonstrates a
manager's utility function. In this notion, the corporation will strive for
maximum returns or profit, while the manager will strive for maximum
efficiency.
7.6 VERTICAL INTEGRATION
7.6.1 Introduction:
When media companies own different businesses in its own chain of
production then it is known as vertical integration. The media firm control
all the aspect right from the creation of the content to its distribution etc.
organisation enjoys profit of both the company thus getting combine munotes.in
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benefit. Vertical integration reduces the price of product or service till is
reaches final customer as the profit element that is involved at each stage
is eliminated. Vertical integra tion also help media companies to
differentiate themselves from competitors. Eg. fox company owns studio,
cinema, TV channels and DVD rental shops.
7.6.2 Types of vertical integration:
Backward integration:
When a media company integrate with another company which is a stage
before in supply chain then such integration is known as backward
integration. Eg film distributor merges its business with film produce. A
newspaper house or a magazine publishing hou se integrating with a rim
manufacturing companies. Such integration will help newspaper house or
magazine publishing house to maintain quality of paper as well as
reducing the cost.
Forward integration:
When a media company integrate with another comp any which is a stage
after in supply chain then such integration is known as forward
integration. Eg camera manufacturing company will integrating with
photo -developing software companies. Owner and operator of an event at
various venues Live station a cquired Ticketmaster which sells tickets for
various events.
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