Basic Media Economics

 

Relative Economic Importance

Media industries are huge businesses that have a large impact on the economy

 

·         Media industries generate over $700 billion in revenue annually

·         Media have fairly consistently accounted for about 3% of the GNP since 1929

·         $800 per average person of direct spending

·         $1,600 per average person of indirect spending

 

Comparisons to other expenditures

·         Per Capita Expenditures for Various Items

·         Expenditures of the Federal Government

 

PROFIT ORIENTATION

The major media industries are businesses and the goal of business is to produce as large a profit as possible

MEDIA PRODUCTS ARE SIMPLY VEHICLES FOR PROFIT – that is their sole raison d’ệtre

Profit = difference between revenue and expenses

Can be calculated as % of return on revenues (ROR); or

As % of return on assets (ROA)

 

The media industry as a whole earns a higher rate of profit than the average of all industries

They do not do this at an even rate

-  Comparison of Profits Across Media Industries

 

Revenue and Expenses

Revenue

Media industries have several streams of revenue

·         From direct costs to the consumer

·         From indirect costs to the consumer = from advertisers

Shift toward an increasing amount of indirect

 

Advertising revenue varies for each industry

·         Books – 0%

·         Magazines – 50%

·         Newspapers – 80%

·         Broadcast media – 100%

 

Costs

Media industries want to reduce costs (expenses) so as to increase profits

 

Personnel

·         Clerical

·         Talent

 

Cost of first copy

With more units produced the fixed cost can be spread across more units

·         Fixed costs

·         Variable costs

 

Competition

Economic game is fraught with conflict since the players all have different interests:

·         those who own and control the media vehicles

·         employees of media companies

·         audiences

·         advertisers

 

Media corporations compete with one another in all these spheres

 

Media Corporations compete in different markets

·         Ubiquitous

·         Niche

o       geography, or

o       audience interest

 

Media industries compete within monopolistic markets

·         each firm is large relative to its market

·         barriers to entry in the market are high

 

Often the products that compete are fairly similar

- role of advertising.

 

Conclusion

Perhaps the greatest degree of media illiteracy exists in the economic area

At the most fundamental level media products are vehicles for profit creation