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Media Economics and Government Policy June 20, 2014

In a globalized media world, increased deregulation is leading to increased concentration of media ownership and a decrease in public interest as a factor in policy making.

Regulating the media industries is a tricky issue for any State owing to the distinctive nature of the industry where it has to protect the consumer interests on the one hand and the market economy on the other, while ensuring the health of the general economy to which the media industry is no trivial contributor.

Where earlier media economics was shaped by government policy, today globalization and convergence of media and telecommunications technologies are changing the way conventional economics plays out, forcing governments to follow the media transformation to formulate globally relevant policies.

Theoretical Framework:

In media economics, regulation and policy framework – whether founded in a particular political economy or simply in a government’s obligation to protect public resources – are discussed in macroeconomic theories to gain a broader focus on how governments deal with, and keep up with, the factors affecting media evolution (Albarran, 2004)

Thus, Policy studies become a natural area of inquiry in the context of media because regulation impacts markets in terms of their economic structure and potential.

In recent times, however, as media is undergoing a sea change owing to waves of technological sophistication, media economists and policymakers are trying to re-interpret microeconomic theories with regard to concentration, consolidation and convergence in the media markets.

In fact, so dramatic is the transformation of the media landscape that the conventional microeconomic theories of the Firm and Niche are being challenged, rendering them almost redundant (Albarran, 2010). The market structure has become increasingly oligopolistic as media conglomerates have been increasingly consolidating their interests with those of the telecommunications industries.

This review attempts to understand how both macro and micro economic theories are being studied to explain the increasingly complex media industries in a globalized economy.

Introduction:

In the light of economic theories, the unique nature of the media industries becomes apparent in the way government policy and media economics seem to chase each other.

One view is that government policy and regulation are external forces that drive change across the media industries leading to evolution of media economics (Albarran, 2004). A more recent view turns the concept around to state that it is the distinctive characteristics of media industries and media products, and consequently media economics that plays a central role in media policymaking (Napoli, 2004).

Government intervention in the media industry happens in three main ways: through legislation, regulation and provision of subsidies (Moyo, 2004).

Over the years, media industries have evolved in many developed nations from being strictly regulated to various forms of deregulation and liberalization, especially in the US and the UK.

Other nations have followed suit to some degree, but in most Middle East and Asian regions heavy regulation still exists (Albarran, 2010).

Since the 1980s, irreversible fallout of deregulation has been increased consolidation of media organizations across the globe and concentration of ownership. Large companies like Viacom, Disney, Time Warner, News Corporation, Bertelsmann and Sony compete at a global level, offering their media products and services throughout the world (Albarran, 2010)

In more recent years, however, convergence-induced media alliances have brought about a situation where regulators and policymakers are in a bind to follow evolving media market realities to frame appropriate laws to protect the end-consumer interests and those of the general economy (Cuilenburg, McQuail, 2003).

Rise of media policymaking

For want of a standard model to exemplify government regulation of media, this review takes the rise of American federal regulation, which has indeed influenced media policy making in many countries.

Broadcasting remained unregulated for over two decades before the first commercial broadcast in 1920. The resultant proliferation of commercial broadcasting led to The Radio Act of 1927 – the first attempt at establishing a comprehensive regulatory framework for radio, including broadcasting (Corn-Revere, Carveth 2004)

The 1940s and 1960s saw the rise and modification of regulation with regard to television and the 1970s saw the rise of rules that involved cross ownership of radio and television stations.

Fast forward to the 1980s and the 1990s when with the Internet adding to the glut of radio and television broadcasting, the Federal Communications Commission (FCC) took a series of deregulatory actions and liberalized former policies (Albarran, Media Economics, 2004).

Consequently, ownership limits were increased, and rules regarding program requirements and public interest standards were either removed or relaxed.

Thereafter, the 1996 Telecommunications Act eliminated competitive barriers in the broadcast, cable and telecommunication industries, further relaxing ownership rules and allowing companies operating in one industry to compete in others. Subsequent rulings passed in 1998 and 1999 to stimulate competition paved the way for increasing consolidation across US media industries.

State interest in media economics

For a glimpse into the scale and scope of the US media industry a PriceWaterhouseCoopers report shows revenues of $443 billion in 2010, which is expected to go up to $555 billion in 2015 (Fixmer, 2011).

And to put the media-State equation into perspective, we may cite the instance of the UK story: The creative industries in the UK are currently worth more than £36 billion a year, generating £70,000 every minute for the UK economy; employing 1.5 million people in the country; and accounting for £1 in every £10 of the UK’s exports. The UK government, in a policy paper, states that it is “proud” of its media industry and considers it an important part of its economy. The UK government makes it clear that it “supports these industries through financial incentives, promotion at home and abroad, and reducing unnecessary regulations.” (Department for Culture, Media & Sport, 2013)

Thus it may be seen the significance of the media economy to the overall economy of a nation, and why governments are prone to create policy conducive to the health of both, even if it were to take precedence over public interest.

Pro-industry policies notwithstanding, control over communications industries is directly related to the economic well-being of any country, primarily because of the assured foreign investment, export and taxable revenues, generation of employment and so on (Sarikakis, 2009). Policy comes in the form of enforcing intellectual property rights, ensuring access to telecom infrastructure, promoting ICT (Information and communications technology)-based exports and subsidizing foreign investment in communications industries.

Deregulation and Re-regulation

Ironically, the most manifest of governmental policy on media economy in most parts of the world today is in deregulation.

The fundamental goal of deregulation and liberalization (which began with the United States) was to loosen the controls and regulations on the financial markets in order to increase level of investment and triggering the multiplier effect. In practice though, the move had negative consequences where media businesses took huge leaps to forge mega mergers (Owers, Carveth, Aleander, 2004)

This manic trend of mergers finds basis in the deregulation of media in the late 1980s and through the 1990s. Such relaxation of rules as led to massive consolidation and creation of an oligopolistic media market, continues to be a matter of acute concern for media researchers, economic experts and advocates of a ‘free and independent news media’, localism, and cultural identity and diversity.

The term deregulation itself has come to be debated for its many effects. Moyo cites Steven Vogel who has referred to deregulation as “semantic confusion”, in the sense that deregulation is used to refer both to the introduction of more competition within a market and the reduction or elimination of government regulations.

The more appropriate term suggested is “re-regulation”, which means reformulating old rules and creating new ones, resulting in freer markets but with more rules.

Moyo then cites Hesmondhalgh who prefers the term marketisation and argues that both deregulation and re-regulation provide misleading positive connotations in describing the spread of neoliberal policies.

Critiques of deregulation are many and a particularly harsh one comes from Mary Hickman, who says that an explosion of mergers leading to an oligopolistic market has the government’s blessings, and in America, the media oligopoly is actually subsidized by the government (Hickman, 2007).

Although Cuillenburg and Mcquail call it economic pragmatism, they say the retreating of governments from regulation where it interferes with market development gives relatively more priority to economic over social-cultural and political welfare of the nation.

Governments are also blamed for framing conflicting policies because different policy makers pursue different objectives simultaneously. Media industry is variously governed through industrial development policy, labor policy, trade policy, competition policy, cultural policy and media specific policy, each of which may be at odds with the other, making a unified outcome nearly impossible (Harcourt, Picard, 2009).

Impact of new media on media regulation

Media industries gained economic significance only in the wake of convergence between the media and telecommunications technologies, forcing nations across the globe to adopt new regulatory philosophies (Napoli, 2004).

Napoli’s views echo Cuilenburg and McQuail who say ‘communications policy’ as an idea took clear shape in the late 20th century because of technological and economic convergence – that is the merging of the branches of computing, communications and content.

It’s pertinent to say that the current economic dynamics of the media and telecommunications industries has been brought about by the Internet. The Internet has not only revolutionized the way content is produced but also the way consumers access it and consume it. Although originating in government sponsorship, the Internet paradoxically, began and flourished in “freedom” (Cuillenburg, McQuail, 2003). Therefore the guiding principle for any policy that concerns the Internet has to follow the concepts of freedom, access, and control or accountability.

Consequent to convergence, ministries of communication were founded in governments and new media laws began to be promulgated. Regulation of mass media became increasingly connected to telecommunications regulation.

Some of the elements that govern media economics today are ownership limit, cross-media ownership, access to broadcast spectrum, channel assignment, licensing, net neutrality, copyrights, diversity and localism of content, and public interest.

Cuilenburg and McQuail also touch upon political economy as a driver for media economic development, as also globalization of communication, and the reach of multinational media across national borders.

In the face of new technologies with unknowable potential for development, and vast commercial and industrial interests at stake, governments are struggling to keep abreast of change.

The Net Neutrality Debate

With the growth of the Internet, governments are now seized with the critical issues of Internet governance and content regulation (Moyo, 2004).

However, a more important issue that is calling on government intervention today is that of Network Neutrality – an issue that is tied in again with choosing between corporate interests and consumer interests.

Net neutrality or network neutrality or Internet neutrality as it is variously referred to, is about maintaining and protecting the neutral nature of the Internet without the service providing companies or the content providing companies deciding who can access what content and how on the Internet.

Internet service providers contend that they are justified in wanting a share of revenues that content carriers like Google and Yahoo rake in, using the service providers’ existing infrastructure. Consumer and media advocates fear this will lead to content prioritization by the service providers, which is unfair to other content companies as also to the consumer who will likely end up paying more to access such content.

Content prioritization or a tiered Internet translates to huge returns for telecommunications and media companies that may choose to tie up to cash on premium content.

Most countries, including the United States, have not legislated on this aspect of media business, and are not likely to do so any sooner considering the global advocacy against it.

Towards a democratic global policy

Increasingly, as media conglomerates expand their operations beyond national borders, media policy too is being made outside of national regulatory agencies at global venues. Increasingly too, political economies are influencing global media economics, with the hitherto developing nations asserting themselves for equal opportunities.

However, this is not necessarily a healthy situation since most global media policy discussions tend to be dominated by the United States, which invariably is prompted by the interests of the big business rather than those of consumers, be it American or those across the world (Costanza-Chock, 2005).

The manic levels of consolidation and cross-ownership in the wake of further deregulation by the FCC in the US in 2003-2004 took the policy debate to a whole new level of advocacy that reached beyond national borders (Costanza-Chock, 2005).

Media policy activists from around the world are increasingly rallying together against mega mergers, at such forums as the International Telecommunications Union (ITU),  World Summit on the Information Society (WSIS), World Intellectual Property Organization (WIPO), United Nations Educational, Scientific, and Cultural Organization (UNESCO), Internet Corporation for Assigned Names and Numbers (ICANN), and the World Trade Organization (WTO).

But perhaps global communications policy may after all move beyond the purview of the influential West because such policies are no longer “made” at any clearly definable locations but are increasingly a result of formal and informal mechanisms working across a multiplicity of sites such as the forums mentioned above (Raboy, 2002)

Working towards a “free trade in communication”, (Winseck, 2002) what was until recently defined by national legislative and regulatory frameworks and a minimum of international supervision, is now a subject of a complex ecology of interdependent structures made up of national parliaments and ministries, international organizations (such as WTO, ITU and UNESCO), global clubs such as the G8 and the OECD (Organization for Economic Co-operation and Development), regional bodies and treaty agreements such as EU and NAFTA as well as transnational corporate boardrooms (Raboy, 2002).

Conclusion

Although the all too powerful transnational media behemoths appear to dictate policy owing to their sheer size, scale and scope of operations – not to mention their significant contribution to a nation’s GDP – States are still carrying out the critical function of lawmaking; and are still responsible for licensing broadcasters, imposing limitations on ownership and operations, etc. (Moyo, 2004).

But more than 70 years of experience with regulation of communications industries has proven, if nothing else, that public interest is an elusive concept (Media Economics Theory and Practice). Nevertheless, the Internet is hoped to be a democratizing factor where public interest will gain priority in policy, access being the main goal (Cuilenburg, McQuail, 2003). However, what form would governmental control take, remains unclear.

In the internationalizing of media policies, clearly, it is economic, rather than political considerations that are dominant; and if global media issues reach the agenda of international bodies, it is simply because of factors influencing global financial markets (Nordenstreng, 2011).

Economic transformation notwithstanding, one thing that has not only remained constant but has become a determinant factor in the transformation, is the profit motive. And that is why policy and regulation remain crucial.

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Citations

Albarran, A. B. (2004). Media Economics. In The Sage Handbook of Media Studies. Sage Publishers.

Albarran, A. B. (2010). The Media Economy. Routledge/Taylor & Francis.

Costanza-Chock, S. (2005). The Globalization of Media Policy. In R. N. Robert McChesney, The Future of Media: Resistance and in the 21st Century. New York, London, Toronto, Melbourne: Seven Stories Press.

Department for Culture, Media & Sport. (2013, February 27). Making it easier for the media and creative industries to grow, while protecting the interests of citizens. Retrieved August 20, 2013, from Gov.UK: https://www.gov.uk/government/policies

Fixmer, A. (2011, June 14). US Media Industry Revenue Rose 3.1% in 2010 for First Gain Since 2007. Retrieved August 20, 2013, from Bloomberg.com: http://www.bloomberg.com/news/2011-06-14/u-s-media-industry-revenue-rose-3-1-in-2010-for-first-gain-since-2007.html

Hickman, M. (2007). The Effects of Media Globalization. Retrieved August 20, 2013, from http://www.radford.edu/~mahickman/portfolio/index.html

Owers, J., Carveth, R. (2004). An Introduction to Media Economics Theory and Practice. In O. C. Alexander, Media Economics Theory and Practice Third Edition. Lawrence Erlbaum Associates.

Jan van Cuilenburg, McQuail, D. (2003). Media Policy Paradigm Shifts-Towards a New Communications Policy Paradigm. European Journal of Communication, Sage Publications .

Moyo, Dumisani (2004). Globalisation, Culture and Politics. Media and Globalisation .

Napoli, P. M. (2004). Media Economics & Media Policy: The Good and the Bad. The Donald McGannon Communication Research Center.

Nordenstreng, K. (2011). Free Flow Doctrine in Global Media Policy. In M. R. Robin Mansell, The Handbook of Global Media and Communication Policy. Blackwell Publishing Ltd., UK.

Picard, R.G., Harcourt, A. (2009). Policy, Economic, and Business Challenges of Media Ownership Regulation. Journal of Media Business Studies .

Raboy, M. (2002). Global Media Policy in the New Mellennium. University of Luton Press, UK.

Corn-Revere, R., Carveth, R. (2004). Economics and Media Regulation. In O. C. Alexander, Media Economics Theory and Practice Third Edition. Lawrence Erlbaum Associates.

Sarikakis, K. (2009, October 23). Regulation Regularisation and Change in the Global Integration. Department of Communication Faculty of Social Sciences.

Winseck, D. (2002). The WTO, Emerging Policy Regimes and the Political Economy of Transnational Communications. In M. Raboy, Global Media Policy in the New Millennium. University of Luton Press, UK.

 

Srirekha Chakravarty

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