Reconsidering Media Economics

Presentation to Faculty of Journalism. Lomonosov Moscow State University

16 October 2014

Terry Flew, Professor of Media and Communication

Creative Industries Faculty,Queensland University of Technology.

Brisbane, Australia

• Presentation based on forthcoming book:

Stuart Cunningham, Terry Flew and Adam Swift, Media Economics (Palgrave, 2015)• Publication in April-May 2015

• Dominant economic theories– Mainstream (neoclassical) media economics– Critical political economy

• Emergent economic approaches– Institutional economics

• New Institutional Economics (NIE)• New economic ssociology

– Evolutionary economics

• Case studies– Public service media (PSM)– Changing (digital) ecology of television

• The apparent inability or unwillingness to criticize economics as useful knowledge from anything but a radically external position produces an extreme disconnection between socio-cultural criticism and the world of economics. Too often, the criticism of academic economics is founded on an imaginary summation, which is really a relative ignorance, of economics; in addition, the point from which such criticisms are offered is often not a theorised analysis of real economic complexities, but an imagined position of radical opposition, in which the only possible politics is defined by the moral project of overthrowing capitalism (Lawrence Grossberg, Cultural Studies in the Future Tense, 2010, p. 107).

• ‘A romantic Marxist rejection of the market per se … [has] blocked analysis of how actual markets work and with what effects. This has meant that … it has not taken the economics in PE [political economy] with the seriousness that it deserves and requires’ (Nicholas Garnham, ‘The Political Economy of Communication Revisited’, 2011, p. 42).

Mainstream media economics

• Application of neoclassical microeconomics– Individual as primary unit of analysis– Rational choice assumptions– Market equilibrium prices– Theory of supply and demand

• Influence among media decision-makers• Media policy influence

• ‘Economics, as a discipline, is highly relevant to understanding how media firms and industries operate … [because] most of the decisions taken by those who run media organisations are, to a greater or lesser extent, influenced by resource and financial issues’ (Gillian Doyle, Understanding Media Economics, 2013, p. 1).

• ‘Policy researchers seem to divide roughly between … the “market economics” and “social value” schools of thought, and the two are often so far apart in their assumptions and languages that they are unable to communicate with each other’ (Entman and Wildman, 1992, p. 5).

Challenges of media for economics

• Heterogeneous nature of media ‘product’ – difficulty in determining what the ‘price’ is for

• Dual media markets: consumers/advertisers• Tendencies towards concentration of ownership and

market oligopoly• Importance of non-economic principles in media policy

e.g. diversity and media pluralism, public goods, socio-cultural dimensions of media content

Twilight of the media mogul?

Digital transformation of media industries and markets

• Shift from content scarcity to content abundance• What is the content of digital media – products, services

or platforms?• Freely available content and implications for professional

media production• Are content aggregators (Google, Apple etc.) in the

media industries?

Critical Political Economy (CPE)

• Importance of understanding historical dimensions of social change

• Mutually constitutive relationships between economics, politics and culture

• Moral philosophy of critique of industrial structures/social relations of capitalism

• Engagement with organised labour and social movements

Is CPE a ‘big tent’?

• Winseck (2011) proposes that institutional, evolutionary and (some) neoclassical economics is broadly cognisant with CPE

• Contested within the field, where CPE has been defined in opposition to:– Cultural studies – Neoclassical economics– Media industry studies (Meehan and Wasko, 2014)

Revisiting the ‘active audience’ debate

• Cultural studies questioned degree that audiences adhered to ‘dominant ideologies’, pointing to active audience/user agency

• Critiqued among CPE theorists as ‘cultural populism’ (McGuigan 1992)

• The cultural as formative of industrial/market structures or ‘residual and merely reflective’ (Stuart Hall, 1986)?

Impasse in media economics

• Neoclassical ME vs. CPE has become a metaphor for rehearsing familiar and well-worn pro/anti-market arguments

• ‘My main argument with many of the versions of the return to Marxism today [is] they share exactly the same worldview as the so-called neoliberals. They think there is one solution to the problem. One thinks that the market will solve everything, the other that doing away with the market will’ (Nicholas Garnham, interview with Christian Fuchs, 2014, p. 121).

Contested questions

• Power– Asked to do too much theoretically?– Relationship between economic, political and

cultural/symbolic power?– Power as top-down (domination) or relational?

• Public policy• Global and the local/national• Media industry studies and theoretical ‘eclecticism’ (Holt

and Perren, 2009); Havens, Lotz and Tinic, 2009)

Institutionalism

• Long history in the social sciences– Middle-range theories (Merton)– Structure/agency dialectic (Giddens)– Historical path-dependency

• Neoclassical focus on rational choice individualism has historically marginalised institutional economics

• Dissenting tradition: Veblen, Galbraith• Communcation studies: political economy of Harold Innis and

Canadian comms. school• ‘it is … on individuals that the system of institutions imposes

those conventional standards, ideals, and canons of conduct that make up the community’s system of life’ (Veblen 1909 [1961], p. 38).

New Institutional Economics (NIE)

• Douglass North, 1993 Nobel prize winner - economics had cut itself off from history, neglecting the historically evolving role of institutions and the significance of how such institutions develop over time

• NIE maintains continuities with mainstream microeconomics, particularly in retaining architecture of rational choice theory in its analyses of individual behaviour – different to ‘old’ institutionalism and economic sociology

Key NIE concepts

• Bounded rationality– while individual behaviour can be intentionally rational, ‘in

practice … all decision makers (entrepreneurs, consumers, politicians, etc.) act subject to imperfect information and limited cognition’ (Furubotn and Richter, 2005, p. 556).

• Transaction costs– ‘costs of running the economic system’ (Kenneth Arrow) -

include market engagement costs, managerial transaction costs, and political transaction costs

• Uncertainty and imperfect information– Ex ante/ex post imperfect information

• Asset specificity– both the nature of the asset and its use are incompletely defined – ‘A list/B list’ in creative industries (Richard Caves)

The firm as a nexus of contracts

• Origins with Coase (1937)• Institutional form than economises on transaction costs• Implicit and relational contracting• Contracts rely upon trust, social networks, reputation• Applicable across both private and public sector

institutions

Institutions in NIE

• institutions as ‘the humanly devised constraints that structure human interaction’ (North, 1994, p. 360)

• Institutional arrangements/governance structures (micro)• Institutional environment/ ‘rules of the game’ (macro)

– Formal institutions: rules, laws, policies etc.– Informal constraints: norms, conventions, cultural codes etc. –

links to history and culture

Levels of NIE analysis (Williamson)

Level of theory Level of analysis Frequency of change

Purpose

1) Social theory Embeddedness, informal institutions, ‘mental maps’, beliefs, norms

100-1000 years Often non-calculative; spontaneous

2) Law and politics

Institutional environment; ‘rules of the game’; governing institutions

10-100 years Getting institutional environment right

3) Transaction cost economics

Governance structures; contracts; regulations

1-10 years Getting governance structures right

4) Neo-classical economics

Resource allocation; prices; employment; incentives

Continuous Getting marginal conditions right

Evolutionary Economics

• Emphasises non-equilibrium processes and dynamics of capitalist transformation from within (contrast to neo-classical static equilibrium)

• Technological and institutional change endogenous to market economies

• Joseph Schumpeter – creative destruction – ‘bourgeois Marxist’ (Catephores)

• Strong influence upon innovation economics

Public Service Media (PSM) case study

• Transition from PSB to PSM in context of media convergence

• Spectrum scarcity case for PSB no longer plausible• Public good/merit good case challenged in multichannel

environment• PSBs not the only providers of ‘quality’, ‘niche’ or

‘minority’ content• Diversity of PSB histories – no single template

Political economy, PSBs and citizenship

• PSBs seen as central to nation building, citizenship and the public sphere

• Not all PSBs are non-commercial, and even ‘non-commercial’ PSBs have commercial activities

• Normative definition of PSB: does not include, for instance, CCTV as world’s largest state-run broadcaster

• Challenges of PSB Charters – lead or follow ‘public taste?

• Private providers can achieve public good e.g. Google Books case

Core NIE propositions relevant to PSM

• Public and private sector organisations/firms as a ‘nexus of contracts’

• Separation of ownership from management, and principal-agent problem

• Tendency to expand into conglomerates – risk of becoming too big

• Relational or incentive-based contracting – comparable employment arrangements across public and commercial media

Governance challenges for PSM

• Accountability of PSM managers to the public – via the government?

• Should a PSM be trusted to regulate itself?• Distinctiveness of PSM histories and organisational

cultures• Political problem: electoral politics increasing a ‘battle for

political property rights’ – loss of autonomy for public institutions

Public Value Tests (PVT) and PSM innovation

• Public Value Tests being applied to digital expansion of PSBs in EU

• How is ‘public benefit’ to be assessed?• EU: media pluralism established in broadcasting context

(PSB) but role of PSM in digital environment is contested• Ex ante tests as an inhibitor of PSM innovation• Innovation increasingly central to PSM remit