Reconsidering Media Economics: Presentation to Faculty of Journalism. Lomonosov Moscow State University 16 October 2014

1. 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

2. • Presentation based on forthcoming book:
Stuart Cunningham, Terry Flew and Adam Swift, Media
Economics (Palgrave, 2015)
• Publication in April-May 2015

3. • 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

4. • 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).

5. • ‘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).

6. 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

7. • ‘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).

8. 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

9. Twilight of the media mogul?

10. 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?

11. 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

12. 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)

13. 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)?

14. 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).

15. 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)

16. 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).

17. 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

18. 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)

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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