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Media economics is the study of economic theories and concepts applied to the media industries. Media economics is diverse and includes such topics as policy and ownership, market concentration, performance of firms, and political economy of the media.
The Development Of Media Economics
The origins of media economics began with the study of economics. The classical school of economics centered on the interplay of economic forces, operation of markets, and the cost of production. The classical school would later be challenged by ‘marginalist’ economics and Marxism. The marginalists introduced demand and supply, and consumer utility. Marxism identified labor as the source of production. Marxism rejected the capitalist system and the exploitation of the working class.
By the beginning of the twentieth century, neoclassical economics was introduced, differed by its use of analytical tools and mathematics to examine market behavior and price. Later the development of macroeconomics shifted the focus to aggregate economics, encompassing the entire range of market activity. Economic theories are constantly changing and evolving. By the 1970s new approaches included monetarist theories, which re-emphasized growth in the money supply; and rational expectations, which argues that the market’s ability to anticipate government policy actions limits their effectiveness.
As the study of economics evolved, scholars began to investigate different markets and industries. Media economics emerged during the 1950s. The media industries featured all of the elements necessary for studying the economic process. Content providers represented suppliers, with consumers and advertisers forming the demand side of the market. Regulatory agencies (e.g., Federal Communications Commission (FCC)) in the US, the Federal Trade Commission, and other entities) affected macroeconomic market conditions, while the relationship among suppliers in various industries created microeconomic market conditions.
Concentration of ownership emerged as a critical topic as it impacts both regulatory and social policy. Other studies examined media competition, consumer expenditures, barriers to entry for new firms, advertiser/ownership demand, and consumer utility.
Theoretical Dimensions And Methods
Media economics utilizes many theoretical approaches: microeconomic theories, macroeconomic theories, and political economy of the media. Microeconomic studies center on specific industry and market conditions. Macroeconomic studies take a broader focus, examining such topics as labor, capital markets, and gross domestic product. Political economy emerged as a critical response to positivist approaches.
The industrial organization (IO) model offers a systematic means of analyzing a market. The model consists of market structure, conduct, and performance. The model is also called the SCP model. The model posits that if the structure of a market is known, it helps explain the likely conduct and performance among firms. Each area can be further analyzed by considering specific variables within each part of the SCP model. Critics contend that the IO model does not capture the nuances associated with new technologies. However, the model remains a key theory in microeconomics.
The theory of the firm examines the most common types of market structure: monopoly, oligopoly, monopolistic competition, and perfect competition. Defining market structure is complicated due to consolidation across the media industries. Media concentration is examined in one of two ways. Researchers gather data on firm/ industry revenues to measure concentration by applying tools such as concentration ratios. Another method tracks concentration of ownership among the media industries. Research has shown there are a limited number of firms which control media markets. Globalization has contributed to media concentration. Competition studies draw upon niche theory, which originated in the field of biology. These studies consider competition within an industry or across industries. Indices are used to measure the breadth, overlap, and superiority of one competitor over another. Finally, macroeconomic analysis in media economics includes policy and regulatory analysis, labor and employment trends, and advertising revenues and expenditures at the national level.
Media economics embraces different methods. Many include trend studies, financial analysis, econometrics, and case studies. Trend studies are used to compare data over time for topics such as concentration and performance. Financial analysis utilizes different types of financial statements and ratios to measure performance of firms and industries. Econometric analysis uses statistical models to address its research questions. Case studies embrace different methodologies as well as data. Case studies in media economics research tend to be very targeted examinations.
Critics of media economics research contend research is too descriptive in nature, and that methodological approaches are limited. There are also concerns researchers would study only major companies, and not pay sufficient attention to new media enterprises.
Future Directions For The Study Of Media Economics
There are a number of steps researchers need to address to further develop media economics. In terms of research, media economics must address how to define a media market given the convergence and consolidation across the media industries. Most media companies are now multimedia enterprises, generating content across a variety of platforms.
In addition to refining key concepts, media economics research must also expand into new arenas. Among the areas where new understanding and investigation are required are social media, and mobile markets. Media economics scholars should consider new inquiries that draw upon multiple methods of investigation. The interplay of regulation, technology, and social policy presents new opportunities for scholars to generate new theories. Scholars need to examine variables that describe evolving market structures. Improvements in methodological tools are needed to complement expansion in research and theory. New measures are needed to assess within-industry concentration and competition.
Media economics helps to understand the activities and functions of media companies as economic institutions. Media economics research continues to evolve as it analyzes and evaluates the complex and changing world in which the media industries operate.
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