Economics of Advertising Essay

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The economics of advertising shape the history, current  state, and  future  of media. Advertising revenue influences media not  just through  the insertion of ads, but also its nonadvertising content and access.

By 1900 both the uS newspaper and magazine industries generated most of their revenue from advertising. Readers went from being primarily revenue providers – the customer/market of media – to  being the commodity  sold to  the media’s larger customer,  advertisers. For-profit broadcasting  was nearly completely dependent upon advertising. Other media carry only advertising and promotional messages, including billboards, direct mail, and branded  websites. The advertising  industry  involves three  powerful groups: advertisers, advertising agencies, and media. The largest advertisers are multinational conglomerates such as Procter and gamble, spending billions annually. The US receives the most advertising spending, with China a rapidly growing  second.  Agencies engage  in  creative, research, media planning and buying. Large global holding  companies  such  as Omnicom own multiple full-service agencies that integrate marketing, advertising, and public relations functions,  and  leverage their  market  share  in negotiations with media companies.

Advocates contend that advertising encourages lower prices through  economies of scale, economic growth, and ‘free’ media. Criticisms include the barrier  to entry for new commodities, and incentives for the growth of large media monopolies. Advertising also suppresses criticism of the industry and encourages pro-consumption  messages in media content. Some media audiences are more valuable than others: audiences with disposable income and  a susceptibility to  advertising may find many content options.

Changes in advertising spending affect media viability. Decreasing advertising revenue for newspapers triggered concern about the future of journalism. Digital’s interactivity and convergence have attracted advertising spending and facilitated behavioral measures such as ‘cost-per-click.’ The resulting emphasis on data mining has turned media companies into audience information brokers that collect audiences’ media use and consumption  patterns.

Branded entertainment, where advertisers involved in the production processes and integrate the selling function in traditionally autonomous  genres, also changes the economic conventional wisdom of advertising.

Bibliography:

  1. Baker, C. E. (1994). Advertising and a democratic press. Princeton, NJ: Princeton University Press.
  2. Sinclair, J. (2012). Advertising, the media, and globalization: A world in motion. London: Routledge.
  3. Turow, J. (2011). The Daily You: How the new advertising industry is defining your identity and your worth. New Haven, CT: Yale University Press.

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