"Renovating Media Economics", presentation by Stuart Cunningham and Terry Flew, Media@Sydney, Department of Media and Communication, University of Sydney, October 24, 2014

1. Reconsidering Media Economics
Media@Sydney
University of Sydney
24 October 2014
Stuart Cunningham and Terry Flew
Creative Industries Faculty
Queensland University of Technology

3. • Dominant media-economic theories
– Mainstream (neoclassical) media economics
– Critical political economy
• Emergent economic approaches
– Institutional economics
• New Institutional Economics (NIE)
– Evolutionary economics
• Major case studies
– Public service media (PSM)
– The changing ecology of television

4. • Mainstream (neoclassical) media economics (Picard, 1989;
Albarran 2002, 2010; Alexander et. al., 2004; De Vany, 2004;
Doyle, 2006, 2013; Hoskins et. al., 2004)
• Critical political economy (Mosco, 2009; Hardy, 2014)

5. Beyond dualistic thinking
• Economics as a discipline is more diverse and pluralistic
than it appears from the outside
• Keynesian revolution of 1930s; other challenges to
hegemony of neoclassical theory from institutionalism,
behaviouralism, network economics, post-Keynesian
economics etc.
• ‘the neoclassical approach … [is] no longer the
overwhelmingly dominant paradigm it once was’
(Wildman, 2006, p. 68)
• ‘an economic approach to the media needs to be
informed by information economics, and network
economics, institutional economics and evolutionary or
innovation economics’ (Ballon 2014, p. 76)

6. Why is this relevant to media studies?
• new developments in media industries and markets are
stretching the capacity of the established neoclassical
and critical political economy paradigms:
• convergent digital media
• Socio-economic value of premarket and nonmarket
forms
• Disruption of long established media business models
• agentive nature of media audiences
• New media/digital content as sources of wealth creation
and economic innovation

7. 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

8. • ‘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).

9. Worked example of applied media
economics: tablet PCs
1. Apple iPad revealed unmet consumer demand for
tablets
2. Tablet PCs generated monopoly profits for Apple
3. New suppliers entered the market with lower-cost
products (also network effects of Android platform)
4. Apple forced to lower prices and introduce lower cost
competitor: iPad Mini

10. 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

11. Twilight of the media mogul?

12. 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?

13. Critical Political Economy (CPE)
• understanding historical processes of social change;
• mutually constitutive relationship between economic,
social and cultural institutions, relations and practices;
• moral philosophy oriented towards critiquing the
industrial structures and social relations of capitalism;
• commitment to linking intellectual work with progressive
social movements. (Mosco 2009, p. 4).

14. Is CPE a ‘big tent’?
• Winseck (2011) proposes that institutional, evolutionary
and (some) neoclassical economics is broadly within a
commodious CPE
• Contested within the field, where CPE has been defined
in opposition to:
– Cultural studies
– Neoclassical economics
– Media industry studies (Meehan and Wasko, 2014)

15. 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)?
• But heartland debates in media and cultural studies have
done little to conceptually advance what form of media
economics should supplement or contend with critical
political economy

16. Power: an immanent critique
• Power (Thompson 1995)
– Asked to do too much theoretically?
– Relationship between economic, political and
cultural/symbolic power?
– Power as top-down (domination) or relational?
• examples

17. Impasse in media economics
• Neoclassical ME vs. CPE has become a stale rehearsal
of 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).

18. 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
• Communication 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).

19. 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

20. 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)

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. Relational contracting in public sector
media – how much is Tony Jones worth?
• ABC salary “leak”
reminder that there is no
longer a “base pay” for
ABC presenters
• Differential salaries
reflect various
performance-based
(relational) contracts
within the organisation

28. 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

29. 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

30. 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

31. • Kondratieff and Schumpeterian notions of long-wave cycles
• five from the Industrial Revolution:
(1) steam and cotton,
(2) steel and railways,
(3) chemistry and electrical engineering,
(4) petrochemicals and cars, and
(5) ICT
• expansion of the fifth or a new, sixth, wave consisting of
biotech, pharmaceuticals, recycling and alternative energy,
software, mobile communications, and digital technology?

32. Evolutionary account of media in the
economy
Economic model (1) welfare (2) competitive (3) growth and
(4) innovation
Typical indicative
content
Arts, crafts,
material culture,
heritage, PSB?
‘cultural
industries’: film,
broadcasting,
music, publishing
‘creative industries’: digital
content, new, Internet and
mobile media
Sub-discipline/
approach
Cultural
economics
Neo-classical
(descriptive)/
Political economy
(critique)
Evolutionary
economics/innovation
economics
Policy framework Subsidy/grant Industry policy investment/innovation

33. • evolutionary economics provides a non-teleological, non-totalistic
account of the dynamics of capitalism that is as
dynamically conflictual as its Marxist counterpart
• a theoretical and historical framework for a more adequate
understanding of the nature, scope and rate of change media
industries are undergoing,

34. Conclusion
• Intention of the book is not polemical – for or against one or
other school of thought – but rather to identify merits of
diverse strands of economic thought in understanding
changing media environment
• ‘Trade’ (Nelson and Winter) between economics and media,
comms. & cultural studies can generate new insights into long
established issues e.g. technological determinism
• Opening the ‘black box’ of capitalist dynamics promotes a
better understanding of the economy/culture interface
• ‘dual face’ of capitalism as ‘both a system fundamentally
grounded in violence and the most effective engine for
bettering the material condition of mankind ever known’ (Ott &
Milberg, 2004- Centre for Capitalism Studies)
• Merits from point of view of policy advocacy (Entman &
Wildman)