MIT 1050: Week 2

Overview of Media Industries

 Media Companies are businesses:
o Produce media content
o Revenue and profit driven
o Usually publicly held
 Major Characteristic:
o Increasingly concentrated.
o A small number of global firms control over 80% of all media produced.
o Often part of bigger businesses.
o Try to avoid government regulation.
o Free market competition.
o Try to minimize risk.
 The Audience Commodity:
o Media companies produce audiences. The audience is the commodity that they
sell to those who fund the making of media, for example a sponsor in network
television (commercials).
o Television is the top vehicle for reaching a large audience at the same time, ex.
Super bowl.
o Media companies see sponsors and other forms of financial income as their
primary audience.
 Issues faced by media companies:
o Making media is expensive.
o Impact of new technologies on how media is used and consumed.
o Shareholders demand returns.
o Aim to make as much money from their content as possible.
o Parent companies want profits.
o Create synergy.
 Synergy – the idea that more is greater than the sum of its parts, 1+1 > 2. Working
smarter with partners and other divisions within the same parent company, doing more
with your resources than you can do on your own.
o One solution: Cross Promotion – promoting your product with that of another
company. Used to leverage the popularity of one of the companies/ to reach a
whole new audience for your product. More effective than regular marketing
because each company implicitly vouches for the other.
 Effective.
 Short term.
 Might not reward each company equally.
  Do not bring much beyond a bit of incremental revenue to both partners
during the promotion.

Media Conglomeration and Concentration

 Conglomeration and Concentration
o Getting bigger by buying other companies or creating new divisions.
o Keeps all revenue in house.
o Different types of media businesses under the same corporate roof.
o Ability to leverage content across many types of media companies and
platforms.
o Synergy between all of the different companies and platforms owned by the
conglomerate.
o Can lead to extreme market concentration. A handful of media companies
(around 5/6) control approximately 80% of the media produced and increasingly,
our access to it.
o Ex. Time Warner Inc. bought AT&T -- Warner Media (HBO MAX – Netflix
competitor)
o Goal: Create economies of scales – cost reductions that occur when companies
increase production. They can spread fixed costs, like those of administration or
labor, over more productions units. They can buy in bulk, save money on logistics
such as shipping, spread risk across the units, and more. The bigger the better, as
economies of scale provide a competitive advantage to large entities over small
ones, as it enables them to lower the per-unit costs of goods they produce.
Theoretically, some of the money could result in lower prices.
o Vertical Integration – occurs when a company owns the means of production,
distribution, and customer interface. All money stays within the conglomerated
company. Vertical integration can help boost profits and allow more immediate
access to consumers.
o Horizontal Integration – owns several types of businesses in order to maximize
profit from their content. Can get as much money out of it as possible across a
range of platforms.
o Canadian media companies are highly vertically integrated. In Canada, all of the
main television services except for CBC and foreign-owned streaming services
like Netflix are owned by telecom corporations. The top 5 Canadian media
companies accounted for 73.4% of the $86.2 billion network economy in 2018.
 This level of concentration should lead to lower prices for the consumer,
however, this is not the case in Canada.
Media Conglomeration and Concentration – Implications
 Oligopolies – an economic condition, in which a small number of owners control a large
majority of the market, meaning few suppliers.
o Telecommunications in Canada is an oligopoly.
 Firms sell identical or differentiated products
 Collusion
 Rivals aware of what other are doing
 Interdependence
 Few major sellers
 Entry and exit barriers
 Non-price competition is common
 Imperfect competition
o An example: Recording Industry – 3 to 6 major labels are controlling over 80% of
the market for recordings. Although we rarely buy music in physical form
anymore, the major labels are still making plenty of money through downloading
and streaming, as they cut deals with music streaming services for the use of
their intellectual property, that is, recordings.
 “Big three” label is a corporation that manages several small businesses.
 Major labels make up as much as 80% of the music market or more.
 Artists sign to central label or one of its subsidiaries.
 Labels have own staff, make own financial decisions.
 Labels are answerable to main company for budget, staffing, etc.
 For examples, a band might sign to Sony, or its subsidiary Columbia
Records.